The euro hit a two-month high against the dollar on Thursday after strong Australian jobs data boosted higher-risk currencies, while investors awaited comments from the European Central Bank on bank stress tests.

A surprise jump in Australian employment in June pushed the Australian dollar up more than 1 percent on the day against the dollar and up nearly 2 percent against the low-yielding yen.

The European Central Bank is expected to keep interest rates at a record low 1.0 percent when it announces its policy decision at 1145 GMT (7:45 a.m. EDT). Market focus will be on any comments by

ECB President Jean-Claude Trichet on whether he believes stress tests on European banks will be tough enough to convince markets of their worth. Trichet is due to hold a press conference at 1230 GMT.

Financial markets are so far giving European authorities the benefit of the doubt over bank stress tests, even though the adverse scenario of a 15 percent haircut on Greek debt looks too generous, Chris Turner, head of foreign exchange strategy at ING, said in a note.

Investors will also watch for clues on whether the ECB is happy with the rise in money market rates or may seek to raise liquidity supply, possibly via tenders with longer maturities.

The euro would gain on ECB signals that it is not concerned about the rise in money market rates, Commerzbank said in a note.

The single currency climbed as high as $1.2688 in Asian trade, its highest since mid-May, before trimming some gains. It was trading at $1.2650 by 0838 GMT, slightly higher on the day.

The euro has enjoyed a short-covering rally in the past month, after hitting a four-year low of $1.1876 in early June.

Analysts say it could have a bit further to rise against the dollar, 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.

The $1.2767-80 band is where downtrend resistance emerges 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 the euro will stay weak against the dollar in the coming year.

The yen was one of the biggest losers of 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.

Sterling hit a two-month high versus the dollar of $1.5241 as easing concerns about the euro zone banking system and global economy boosted riskier currencies.

Markets awaited the Bank of England's monetary policy decision at 1100 GMT, though most economists expect the bank to leave interest rates at 0.5 percent.

AUSSIE UP, YEN HIT

The Aussie was 1.7 percent higher versus the yen at 77.09 yen, after hitting 77.23 yen, its highest in more than a week on the back of data showing Australia created 45,900 jobs in June, much higher than forecasts for 17,500.

The Aussie rose 1.0 percent on the day against the dollar to $0.8732, touching its highest in almost two weeks at $0.8748 and pushing above its 55-day moving average at $0.8664.

The low-yielding yen has benefited recently as investor confidence has taken a knock, but it fell sharply against the euro, dollar and kiwi on Thursday. A 0.7 percent rise in European shares .FTEU3 underpinned improved risk demand.

Against a basket of six major currencies .DXY, the dollar slipped to a fresh two-month low of 83.707 before recovering back to 83.90.

(Additional reporting by Naomi Tajitsu; Editing by Susan Fenton)

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