The dollar fell against the euro on Friday after an unexpectedly strong U.S. jobs report failed to change views that U.S. interest rates will stay on hold this year while overseas rates rise.

The dollar initially rallied after the report, but quickly gave up its gains, hitting a 30-year low against the Canadian dollar and approaching a record low against the euro. A large U.S. bank and a central bank stepped in to buy euros, snuffing out a fleeting dollar rally after the data, traders said.

The government's non-farm payrolls report, the most closely watched barometer of the health of the U.S. labor market, showed 132,000 jobs were created in June, beating the consensus forecast of 120,000 in a Reuters poll.

The dollar rose for a fourth straight session against the yen. But it fared worse against European currencies as the jobs data merely confirmed a view that the Federal Reserve will keep interest rates on hold at 5.25 percent this year, in contrast to the euro zone and Britain, where further monetary tightening is in store.

The jobs data, combined with other strong reports earlier this week, show support to the dollar in the long run, but rates are still higher in Europe and will remain so for the time being, said Jason Schenker, an economist at Wachovia Bank in Charlotte, North Carolina.

The euro was up 0.2 percent on the day at $1.3622, a little more than half a cent below a record high hit in April. Earlier in the session the euro had fallen as low as $1.3568 on electronic trading system EBS.

There was some sovereign buying of euros when we dipped marginally lower to around 1.3575 and the market got caught on the wrong side, a trader with a European bank said.

The dollar was up 0.3 percent at 123.29 yen. Sterling was unchanged on the day at $2.0112, around a cent below a 26-year peak hit earlier in the week.

Highlighting the dollar's shrinking yield advantage, even after the strong U.S. jobs report, 2-year U.S. Treasury bonds were yielding just 50 basis points more than euro-zone debt of the same maturity, close to the narrowest in 2-1/2 years.

Interest rate trends for Europe and the U.K. still favor the euro, and to some extent the pound compared to the dollar, considering the Fed's steady-rate stance, wrote Nick Bennenbroek, currency strategist at Wells Fargo in New York.

The biggest winner was the Canadian dollar, supported by firm commodity prices and solid economic data, which has supported expectations that the Bank of Canada will raise interest rates next week.

The U.S. dollar was down 0.75 percent at C$1.0488.

The yen continued to suffer across the board, hitting a record low against the euro for the second straight session as investors continued to sell the currency for high-yielding alternatives in so-called carry trades.

The dollar had a bit of a rally but recent trends have been the carry trade and dollar weakness in general, so it is creating a lot of buying opportunities for the euro and the pound, said Bernard Tsui, senior vice president and FX manager with Union Bank of California.

(Additional reporting by David McMahon)

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