(Corrects May payrolls figure in paragraph 5 to -345,000, not -354,000)
* Dollar rises modestly, pares some gains as stocks climb
* U.S. payrolls data awaited on Thursday
* Some analysts see dollar recovery in H2
(Updates prices, adds comment, details)
By Harpreet Bhal
LONDON, June 29 (Reuters) - The dollar was slightly higher on Monday, supported as investors shied away from taking new positions before key U.S. jobs data due this week, while gains were kept in check as rising stocks stoked slight demand for risk.
The greenback pared some of its earlier gains as stock
markets in Europe gained ground <.FTEU3> and U.S. stock futures
pointed to a higher opening on Wall Street
Analysts said currency movements would remain subdued ahead of U.S. payrolls data and European Central Bank (ECB) and Sweden's Riksbank comments expected later this week, while some said that the dollar may eke out some gains.
"There is some position squaring ... Normally the week before payrolls numbers investors tend to be defensively positioned and right now being defensive means to be long dollar," said Geoffrey Yu, FX strategist at UBS in London.
The market will pay close attention to U.S. payrolls figures, due on Thursday, for any signs of improvement in the economy's health. According to a Reuters poll, forecasts are for a reading of -363,000 in June compared to -345,000 in May.
By 1035 GMT, the dollar index <.DXY> was essentially flat at 79.922. The euro
H1 PERFORMANCE
The dollar has suffered broadly in the first half of 2009 as recovering stock prices has stoked demand for risk -- chipping away at the U.S. currency's safe-haven appeal -- while concerns about the U.S. fiscal position has also weighed on the currency.
The dollar has struggled the most against higher-risk currencies including sterling and the Australian and New Zealand dollars, which have each gained more than 10 percent this year.
Some analysts said that market focus may turn away from risk issues in the second half, while economic fundamentals may take up more of the spotlight, which could reward currencies whose economy are seen improving in the mid-term.
"The dollar should recover in the second half if U.S. recovery expectations increase," said Johan Javeus, chief currency strategist at SEB Merchant Banking in Stockholm.
Other analysts agreed, but said the dollar may falter if concerns grow about Washington's debt burden as it borrows aggressively to help its economy out of recession, along with ongoing speculation about reserves diversification.
The dollar had come under pressure last week as debate intensified about the use of an alternative global currency to the greenback, with China's central bank renewing its call last week for a super-sovereign reserve currency. [ID:nLT614717]
However, China said at a meeting of central bankers in Basel at the weekend that the policy governing its currency reserves, which comprise mainly U.S. Treasuries, was stable and consistent with no sudden changes, giving some respite to the dollar.
Analysts said that while the issue of diversification would likely continue, any move away from the dollar as the reserve currency of choice could take a long time to materialise.
"There will be a structural shift away from the dollar as global players begin to diversity away from dollar assets as well (but) people are so cautious on the outlook right now. No one is too sure when to pull the trigger and they'd rather err on the side of caution," said Yu.
In a sign that the economic downturn may be easing, euro zone economic sentiment improved more than expected in June.
A survey by the European Commission showed economic sentiment in 16 countries using the euro rose to 73.3 points in June from 70.2 points in May [ID:nLT643111]. The data had little initial impact on the euro. (Additional reporting by Naomi Tajitsu; Editing by Toby Chopra)