The euro advanced against the dollar for the fourth straight session on Friday after data showed U.S. employment grew more than expected in September, stirring optimism about the economic recovery. Housing and job growth have been the two missing components of the U.S. economic rebound, a recovery that has been sluggish without them. With better-than expected U.S. job creation last month and data for the prior months revised higher, risk tolerance immediately climbed, prompting a one-week high for the euro against the dollar and a session high for the dollar against the yen. "All in all, it suggests a continuation of the risk recovery and that the U.S. will outperform other developed economies," said Brian Dolan. chief strategist at Forex.com in Bedminster, New Jersey. "That means the dollar should weaken and the yen crosses should move higher as people take on more risk." The euro rose 0.5 percent to $1.3506 on electronic trading platform EBS , well off a nine-month low of $1.3145 touched on Tuesday and on track for its first weekly gain in three. The session peak posted at $1.3525. The dollar rose 0.1 percent to 76.76 yen on EBS with the session peak at 76.93 yen while the euro rose 0.6 percent to 103.66 yen on EBS . The yen barely moved after Bank of Japan kept monetary policy on hold. Governor Masaaki Shirakawa said the yen's rise was having a huge impact on the economy, keeping alive the risk of solo intervention by the Japanese. But while the U.S. jobs report was widely welcomed by investors, analysts still expressed some caution. "This removes some of the concern that the labor market is getting worse," said John Doyle, currency strategist at Tempus Consulting in Washington. "But overall, this still isn't that many jobs, so while it's better than it could be, it's not great." Traders said the euro was still a sell on rallies with a good deal of scepticism over the euro zone's ability to pull together a swift response to the sovereign debt and banking crisis. The ECB stopped short of cutting rates on Thursday as some had speculated, but announced other measures to stabilize the banking sector and euro zone economy. Morgan Stanley said it had changed its short-term strategy and planned to buy pro-cyclical currencies like the Australian dollar and the euro over the next few days to take advantage of the corrective rebound. In a note, its analysts argued that short positions in the euro were at an extreme and there was potential for a correction, although they remain bearish in the medium term. 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 1.2 percent to $1.5620 , according to Reuters data, having dived to its lowest level in 14-1/2 months against the dollar at $1.5270 on Thursday after the BoE decision. The Australian dollar rose 1.1 percent to $0.9843 , on Reuters data, still close to a session high of $0.9879.

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