* Smooth Spanish auction, German data briefly boost euro
* US jobless claims data sap dollar's strength
* Traders cautious ahead of Friday's U.S. jobs data (Updates prices, adds comment, detail)
By Steven C. Johnson
NEW YORK, Aug 5 (Reuters) - The euro rose on Thursday, boosted by solid German industrial data and signs Spain and Greece were making progress in trimming budget deficits, while an unexpected rise in initial U.S. jobless claims weakened the dollar.
But currencies were restricted to fairly narrow ranges, and the euro surrendered most earlier gains, as investors squared positions ahead of Friday's U.S. jobs report.
Economists polled by Reuters expect the U.S. economy to have lost 65,000 jobs last month while adding 90,000 in the private sector.
"No one will want to be short of dollars if there is a positive outcome," said Niels Christensen, currency strategist at Nordea. "But nothing has changed the negative dollar environment."
The euro was last at $1.3174 EUR=, up 0.1 percent but off a session peak of $1.3234, reached after European Central Bank President Jean-Claude Trichet said incoming third-quarter data was stronger than expected. The dollar fell 0.4 percent to 85.90 yen JPY=, just over a yen away from a 15-year low.
U.S. data showed the number of Americans filing for initial unemployment benefits rose by 19,000 to the highest level since April. Economists polled by Reuters had expected a decline.
The New Zealand dollar NZD=D4 fell 1 percent to $0.7265 after the release of weak local jobless data [ID:nSGE6720PV]. The Canadian dollar CAD=D4 neared a three-month high at C$1.0107 per U.S. dollar, boosted by merger and acquisitions speculation.
MORE GOOD NEWS FROM EUROPE
The euro has risen 7 percent against the dollar since July, boosted largely by stronger-than-expected data even as countries cut spending sharply to trim deficits and forestall a debt crisis.
More good news helped it on Thursday. A senior International Monetary Fund official told Reuters that Greece would receive a second tranche of international aid after an impressive start on its austerity plan. [ID:nLAG006364]
And Spain sold 3.5 billion euros in three-year bonds at a lower yield than a previous auction in June, suggesting solid demand for debt from the country that has been experiencing debt problems. [ID:nLDE6740CM]
Both countries were at the forefront of a euro zone debt crisis that drove the current below $1.19 in June, its worst showing since 2006.
The euro also benefited from data showing German industrial orders data rose 3.2 percent in June, surpassing expectations on strong foreign demand. [ID:nLDE6740Z1]
DOLLAR REBOUND ON THE HORIZON?
Recent signs of slower U.S. growth have hobbled the dollar, with weakness in housing and a sluggish labor market causing concern. Speculation that the Federal Reserve could embrace more monetary easing to boost the economy also hurt the dollar this week and pushed down short-dated U.S. Treasury yields.
But "the market increasingly thinks the Fed probably won't do anything drastic after all, because while the U.S. data has been weak, it's not dire enough to panic," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey.
If Friday's data meets or exceeds expectations, he said the dollar will likely rally to cap off the week.
Earlier, the euro fell briefly below $1.3125, which marks the 38.2 percent retracement of the euro's November-to-June decline, and Dolan said a close below there would clear the way for more dollar gains.
Currency strategists at Standard Chartered said in a note to clients Thursday that investors should use current dollar weakness "to renew underweight positions in European currencies such as the euro and sterling," noting that September debt rollovers and the start of Britain's fiscal tightening will hurt those two currencies.
Sterling was down 0.2 percent at $1.5858 but still close to a six-month high above $1.59 GBP=D4.
(Additional reporting by Nick Olivari in New York and Jessica Mortimer in London; editing by Paul Simao)
