* Dollar falls broadly on year-end position adjustment
* Trade quiet, causing exaggerated movements
* U.S. payrolls next week's focus for FX markets
(Updates prices; changes byline, dateline;pvs SYDNEY/SINGAPORE)
By Jessica Mortimer
LONDON, Dec 31 (Reuters) - The dollar fell broadly on Thursday on year-end position adjustment in thin, illiquid trade which prompted exaggerated price movements.
Trade was extremely light, with Tokyo and several European countries on holiday and many banks on skeleton staff ahead of the New Year holidays.
The euro jumped well over a cent against the dollar in early London trade, with traders attributing the move to Asian central bank dollar selling as well as year-end model trades.
The move triggered stops in other currencies against the dollar, which fell across the board, with the Australian and New Zealand dollars the main beneficiaries.
"We're probably seeing some sort of rebalancing. The dollar has had a strong month and people are just taking profits," said Geoffrey Yu, currency strategist at UBS in London.
At 0918 GMT, the dollar index <.DXY> was down 0.5 percent to 77.508, a big turnaround from the previous session when it rose as high as 78.218.
The dollar index has risen around 3.5 percent so far this month but is down around 4 percent over the year.
The euro
"All the models are pointing to a good dollar sell today," a London-based trader said.
Over the year, the euro was up around 3 percent, although that gain pales compared to the Australian and New Zealand dollars -- easily the best performers among the major currencies -- which have risen around 28 and 25 percent respectively.
The two currencies gained strongly on Thursday, with the Australian dollar
Both currencies were hit hard by the global credit crunch in 2008 but recovered smartly this year, benefiting from hefty rises in commodity prices and as the Chinese economy continued to perform well.
Elsewhere, the dollar fell 0.2 percent against the yen
The Japanese currency was otherwise soft, partly as a yield play and partly on concerns over Japan's stretched fiscal position.
The New Zealand dollar continued to attract risk seekers, extending its rally against the yen for a fourth session and driving the cross to 67.16 yen
PONDERING PAYROLLS
There was little in the way of news to digest on Thursday.
Uncertainty remains over whether the dollar will continue its December rally into the new year, though next week's U.S. payrolls data could decide the issue.
"It's going to be a hugely important number," said a trader at an Australian bank in Sydney. "Anything above forecast could see the euro finally break down through $1.4200 toward $1.4000.
"A weak result would be a real dampener after the run of upbeat figures we've seen. The market would have to rethink the Fed timing again, and that could see the euro back up at $1.4700." (Additional reporting by Wayne Cole in Sydney, editing by Mike Peacock)