By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar dropped from three-month high earlier on Friday, weighed down by what analysts viewed as a mixed U.S. nonfarm payrolls report for June, that showed a strong headline number but with some weak components.

Volume is expected to thin out later in the session ahead of the July Fourth holiday weekend.

Despite a soft dollar on Friday, it posted the week on a positive note, with an 0.5% gain. Going into the report, the dollar traded higher on the expectation of a robust jobs number.

Data showed that U.S. nonfarm payrolls did beat expectations, increasing by 850,000 jobs last month after rising 583,000 in May. But the unemployment rate rose to 5.9% from 5.8% in May, while the closely watched average hourly earnings, a gauge of wage inflation, rose 0.3% last month, lower than the consensus forecast for a 0.4% increase.

Analysts said overall the report was strong and trended in the right direction, which should cement the case for the Federal Reserve to start tapering its asset purchases soon. That should be positive for the dollar.

In early afternoon trading, the dollar index was down 0.3% at 92.246, after earlier hitting a three-month high of 92.759.

The greenback has strengthened broadly since the Federal Open Market Committee (FOMC) surprised markets last month by signaling it could tighten policy earlier than expected to curb inflation.

“The bigger picture is that the greenback has extended its post-FOMC rally against the other major currencies this week,” said Jonas Goltermann, senior markets economist at Capital Economics.

“We expect it to make further headway, provided that the U.S. data continue to come in strong.”

The dollar earlier trimmed losses after data showed U.S. factory orders surged 1.7% in May after slipping 0.1% in April. Economists polled by Reuters had forecast factory orders rebounding 1.6%. Orders increased 17.2% on a year-on-year basis.

The euro was up 0.1% on the day at $1.1851.

Against the yen, the dollar slid 0.5% to 111.04 yen, after earlier hitting a 15-month peak.

Despite the fall, TD Securities, said in a research note that the dollar is not looking at the start of a significant correction.

“Beyond the initial ‘sell the fact’ reaction that appears to be underway, we think the overall tone of the report remains positive. After two consecutive ‘disappointments’, the June data offers reassurance that the US economic rebound is on track,” the Canadian bank said.

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Currency bid prices at 2:06PM (1806 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 92.2150 92.5690 -0.38% 2.483% +92.7590 +92.2140

Euro/Dollar $1.1870 $1.1851 +0.16% -2.85% +$1.1870 +$1.1807

Dollar/Yen 111.0100 111.5750 -0.51% +7.44% +111.6550 +111.0100

Euro/Yen 131.77 132.15 -0.29% +3.82% +132.2200 +131.6900

Dollar/Swiss 0.9204 0.9257 -0.56% +4.05% +0.9274 +0.9205

Sterling/Dollar $1.3832 $1.3764 +0.50% +1.25% +$1.3834 +$1.3734

Dollar/Canadian 1.2325 1.2437 -0.90% -3.21% +1.2449 +1.2325

Aussie/Dollar $0.7528 $0.7471 +0.78% -2.13% +$0.7530 +$0.7445

Euro/Swiss 1.0925 1.0965 -0.36% +1.09% +1.0972 +1.0923

Euro/Sterling 0.8581 0.8603 -0.26% -3.98% +0.8617 +0.8579

NZ $0.7032 $0.6969 +0.89% -2.09% +$0.7033 +$0.6947

Dollar/Dollar

Dollar/Norway 8.5880 8.6315 -0.26% +0.26% +8.6735 +8.6090

Euro/Norway 10.1959 10.2179 -0.22% -2.59% +10.2598 +10.1940

Dollar/Sweden 8.5349 8.5722 -0.23% +4.13% +8.6014 +8.5353

Euro/Sweden 10.1311 10.1547 -0.23% +0.54% +10.1740 +10.1305

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Emelia Sithole-Matarise, William Maclean and Jonathan Oatis)

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