* ECB steps, hopes of bank recapitalisation help euro * Investors wary of big bets ahead of U.S. job report * Moody's downgrades UK banks but sterling/dlr firm By Anirban Nag LONDON, Oct 7 (Reuters) - The euro held steady on Friday, pausing from gains made after the European Central Bank said it would provide liquidity to struggling euro zone banks with most investors hesitant to take big bets before U.S. jobs data. Traders said the euro remained a sell on rallies with a good deal of scepticism over the bloc's ability to pull together a timely response to the sovereign debt and banking crisis. "Some of the euro/dollar shorts have been squeezed as the market seems to be taking the positive aspects from the ECB measures and hopes of recapitalisation of European banks," said Paul Robson, currency strategist at RBS Global Banking. "Going into the U.S. jobs data, a very weak number could see the euro drop while a consensus to marginally weak number could help." September's U.S. payrolls report, due at 1230 GMT, is expected to show 60,000 new jobs created and the unemployment rate unchanged at 9.1 percent. The numbers will be scoured for signals to whether the U.S. economy is headed for recession. Robson expected dollar/yen and the Australian dollar to react much more to the jobs number than the euro. The euro was marginally higher at $1.3445 , having hit a nine-month low of $1.3145 on Tuesday. It gained 0.6 percent on Thursday after the ECB announced new 12- and 13-month lending operations as well and a plan to buy 40 billion euros of covered bonds, which will probably tide banks over through 2012. Stops are seen above $1.3470 and $1.35. Traders say a hefty $1 billion in $1.3400 options are set to expire later in the day, along with other expiries at $1.3450, $1.3465, $1.350, which may keep euro hemmed in $1.3400-$1.3450 range. Though the ECB stopped short of cutting rates as some had speculated, the measures were enough to lift share prices and propel copper to its biggest one-day gain in 20 months. But many players doubt that policy action on banks will come quickly, given the euro zone's history of struggle in gaining a consensus among member states, and they think the short-covering rally in the euro could run out of gas soon. UK BANKS DOWNGRADE Analysts remained cautious about whether a positive payrolls surprise could provide lasting support to appetite for risky assets. In an environment where more banks are cutting global growth forecasts and some even expect a double-dip recession, the safe-haven dollar and the yen would be preferred. "Despite a three-day rally in risk assets, the mood remains fragile," Chris Turner, head of FX strategy at ING said in a note. "For example promises of European bank re-capitalisation so far are just that - promises." He added that dollar funding conditions were still tight. Sterling was in the spotlight, gaining against the dollar and the euro with currency investors largely ignoring a Moody's downgrade of some large UK banks. The ratings cut came a day after the Bank of England announced more quantitative easing. Sterling rose 0.5 percent to $1.5517 , having dived to its lowest level in 14 months against the dollar at $1.5270 on Thursday after the BoE decision. The Australian dollar rose 0.6 percent to $0.9805 on the back of rising stock markets. The dollar was steady at 76.61 yen but the euro was softer versus the Japanese currency at 102.90 yen, down 0.1 percent, on Japanese exporter selling. The Bank of Japan kept policy on hold at its two-day meeting that ended on Friday.

Source