Oil was steady near $73 on Friday, near lows for the year after its biggest one-day drop since July in the previous session, as the dollar jumped to its highest against the euro in eight months.

The dollar index, a measure of the greenback's performance against six major currencies, topped 80, its highest in seven months, as concern deepened about worsening fiscal problems in south European countries.

The concern is that key U.S. non-farm payrolls number out later in the day will continue to show rising unemployment in the world's largest economy, especially after an unexpected rise in U.S. jobless claims.

U.S. crude oil for March delivery fell as much as 33 cents to $72.81 a barrel, but recovered to be up 16 cents at $73.30 at 0322 GMT. On Thursday it touched a 2010 intraday low of $72.42 and closed down 5 percent.

London ICE Brent for March fell 4 cents to $72.09.

The crisis in Europe, Greece, Portugal, Spain is going to put downward pressure on the euro until they are able to sort it out and confidence returns, said Clarence Chu, an energy trader at Hudson Capital Energy in Singapore.

But I'm not surprised that crude is down this much, especially because of the rally a few days ago. To me it's not really crazy. What gets people suspicious is when things are different than expected.

On Tuesday prices posted their biggest daily percentage gain in four months, climbing 3.8 percent. They are still about 50 percent lower than records above $147 in July 2008, having shed about $11 from a 15-month high close to $84 on January 11.

ECONOMIC CONCERNS

The strength of the U.S. economy, and hence oil demand, is still a major factor for the market. U.S. non-farm payrolls are expected to be flat in January, after firms slashed thousands of jobs in December.

Investors sold off stocks in Portugal, Spain and Greece and the euro plunged on Thursday as market fears over the fiscal problems of debt-laden southern members of the euro zone widened.

The head of the International Monetary Fund called for painful steps to cut huge fiscal deficits across Europe, saying no country should be under the illusion it was possible to escape the financial crisis without paying the cost.

Concerns about the economy pushed gold to its single largest daily fall since 2008 on Thursday while the Dow Jones Industrial Average briefly fell below the crucial 10,000 mark as stocks suffered their worst losses in more than nine months. <.N>

Traders and brokers at several firms said they suspected the sell-off in crude was also linked to a hedge fund quickly unloading a big oil position.

A sudden rush of volume in front-month New York Mercantile Exchange (NYMEX) crude oil futures trading during the final moments of open-outcry trading on Wednesday was followed Thursday by the fifth-highest trading volume on record for the contract at nearly 500,000 lots.

For NYMEX crude oil prices and trading volumes click:

http://graphics.thomsonreuters.com/gfx/JLeff_20100402174217.jpg

If my fund had cash trouble and I needed the money, I would sell whatever I can, Chu said.

It's definitely possible that we'll test oil's lows for the year, especially if the employment number disappoints, Chu said.

(Editing by Michael Urquhart)

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