* Dollar up on broad euro slide, euro/sterling down 1.3 pct * Traders say euro's end-2008 jump may have been overdone * Trading very thin as 2009 kicks off, moves exaggerated * PMIs to highlight deep Q4 slump By Eric Burroughs HONG KONG, Jan 2 (Reuters) - The dollar climbed on Friday, kicking off 2009 on a positive note as market players shed the euro and said the single currency's rally at the end of last year may have been overdone. European companies and banks were believed to have been heavy buyers of the euro last month as they repatriated funds at year end, especially from central and eastern Europe, in a move that fuelled the slide in those emerging market currencies. Big British companies were also assumed to have been selling the pound in the final month of the year to get some of their hedging needs out of the way, adding to sterling's slide to a record low against the euro that month. With those factors out of the way, market players were starting to turn against the euro on the view that European growth will likely suffer for longer due to the European Central Bank's reluctance to cut interest rates as aggressively as other central banks. "We think there is no reason for euro be at these levels. It is very unsustainable, especially with Europe slowing the way it is and with the ECB continuing to be quite hawkish when economic and monetary conditions remain very tight," said Sharada Selvanathan, a currency strategist at BNP Paribas in Hong Kong. Some market players took short positions in the euro on the first trading day of the year, betting the currency will come under pressure, said a senior FX trader at a European bank in Sydney. Trading activity was very light and currency moves were exaggerated, with financial markets in Japan, China and other countries closed for New Year holidays. Economic data later in the day includes monthly readings of manufacturing in Europe and the United States, which are expected to highlight the global economy's sharp contraction at the end of 2008. Reports so far on China, Russia, India and the Netherlands showed output readings at record lows. The euro fell 0.8 percent from late U.S. trade on Wednesday to $1.3855 , testing chart support levels between $1.38 and $1.3860 including a 38.2 percent retracement of its October-December rebound. The single currency dropped 1.3 percent to 94.525 British pence , taking its losses in the past two trading days to 3 percent after reaching a record 98.05 pence last week. Sterling's recovery against the euro helped it climb 0.3 percent against the dollar to $1.4670 in very volatile trade that saw the pound shoot as high as $1.4888 in early trade on the Reuters dealing system. One proprietary trader at a European bank in Singapore called the early swings in sterling "nuts." The dollar index, a gauge of its performance against six major currencies, rose 0.7 percent to 81.69 <.DXY>. The index rose in 2008 for the first time since 2005 as the dollar attracted safe-haven buying. Against the yen, the dollar rose 0.5 percent to 91.15 . Even as stock markets in South Korea <.KS11> and Hong Kong <.HSI> posted gains of more than 2 percent, higher-yielding currencies took a hit from a drop in gold and oil prices. The Australian dollar dropped 1.1 percent to $0.6955 , in line with a 1 percent drop in gold . But analysts said it seemed the worst was over for battered markets after the historic sell-offs suffered in 2008, with investor risk appetite making a gradual return. "It feels like we've passed through the eye of the storm," said Robert Rennie, chief currency strategist at Westpac in Sydney. "That's not to say there isn't another storm on the horizon, but for the moment the intense pessimism of October and November seems to have eased."

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