The euro pushed to a two-month high against the dollar on Thursday as short-covering kicked in after strong Australian jobs data sent the Aussie dollar up and helped gains in other currencies against the greenback and yen.

The low-yielding yen was one of the biggest losers on the day in what some said was a largely a technical rebound in riskier trades, while the euro's gains quickly ran into profit-taking.

Australian employment surged past all expectations, rising by 45,900 against forecasts for 17,500, and the unemployment rate eased, reviving talk of a rate hike in the next few months and eroding arguments for a possible cut.

The data sent the Aussie up more than half a U.S. cent and more than half a yen to its strongest levels since late June, and helped the euro breach resistance at $1.2673 before it faltered.

The Aussie numbers came in monster. You couldn't fault any of the detail really, it was an all-round fairly strong number, said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong.

Unsurprisingly the Aussie is up, with bill futures also coming off. This leaves the door wide open for a rate hike in August should CPI prove stronger than expected.

Australian consumer prices data is due on July 28.

The Aussie rose 1.1 percent on the day to $0.8726 AUD=D4, touching its highest in almost two weeks at $0.8748 and pushing above its 55-day moving average at $0.8664.

Its next resistance is expected around $0.8780, its June 28 high and an area where stop-losses are lined up.

The latest Reuters poll of about 50 analysts showed the Australian dollar AUD=D4 is expected to trade between $0.8500 and $0.8600 in the next one to three months, before edging up to $0.8700 and $0.8800 over the next six to 12 months.

The Aussie climbed 1.7 percent on the yen to 77.09 yen AUDJPY=R, touching 77.23 yen, also a high of almost two weeks.

The low-yielding yen has benefited recently as investor confidence has taken a knock, and data showed China bought a net $8.4 billion of Japanese bonds, mostly short-term notes, in May, when the euro slid on heightened concerns over euro zone debt.

But it fell sharply against the euro, dollar and kiwi on Thursday. An upbeat day on Wall Street after a bullish forecast from financial firm State Street Corp underpinned improved tolerance for risk early on and boosted the higher yielders. [.N]

Traders and analysts said, however, that much of the trading after the Australian data appeared to be interbank and proprietary rather than client activity, and cautioned that liquidity was thinning, while none of the factors such as Chinese or U.S. growth which had been worrying investors had gone away.

So I think we have risk-on for a few days, and then we have risk-off for a few days, said Robert Ryan, FX strategist at BNP Paribas in Singapore.

The next focus for the market is the European Central Bank, which holds a news conference later after its monthly meeting.

It is expected to face pressure to say whether Europe-wide stress tests on banks will be tough enough to convince markets of their worth.

The euro has had a strong run higher since hitting a four-year low of $1.1876 in early June, driven largely by short-covering.

It rose 0.1 percent on the day to $1.2654 EUR=, after climbing as far as 1.2688.

Analysts say it could have a bit further to go, but resistance at its May 21 high of $1.2673 was proving hard to break cleanly and further resistance at $1.2767-80 was seen as difficult to overcome on this run higher.

That $1.2767-80 band is where downtrend resistance comes in as a line connecting the December 2009 and April 14 highs. It is also a 50 percent retracement of the euro's decline from a mid-April high and the June low.

Longer term, most analysts in a Reuters poll believe it will stay weak against the dollar over the coming year. The survey of about 60 analysts, taken July 2-7, predicted the euro would fall to $1.24 in one month and $1.20 in three months, then to $1.18 in six months and in mid-2011.

The dollar, which has come under pressure in the past week on concerns about the strength of the U.S. economic recovery, dipped to a three-month low on the Swiss franc CHF= at 1.0481 francs.

On an index .DXY=USD which measures its strength against six major currencies it slipped to a fresh two-month low of 83.707 before recovering back to 83.90.

The dollar gained on the yen to 88.20 yen JPY=, up 0.6 percent on the day and edging further off a seven-month low of 86.96 yen hit at the start of the month, as yields on U.S. Treasuries rose, making them a bit more attractive to Japanese investors. (Additional contribution by Reuters FX analyst Krishna Kumar in Sydney and Rika Otsuka in Tokyo; Editing by Michael Watson)

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