* Euro, sterling extend losses against dollar * Fed left alone with stimulus unwinding plan, dollar benefits * Markets focus on U.S. payrolls By Anooja Debnath LONDON, July 5 (Reuters) - The euro struggled near a five-week trough against the dollar on Friday, hurt by the European Central Bank's pledge to keep policy accommodative, and looked vulnerable to more losses if U.S. jobs data beats expectations. The dollar could test near three-year high against a basket of currencies hit in May , traders said, if the payrolls data due at 1230 GMT shows improvements in line with the Federal Reserve's forecast. That would bolster expectations that the U.S. central bank will start slowing its asset purchases as early as September. In sharp contrast, the ECB said on Thursday it would keep rates low for an extended period, driving the yield gap between 10-year U.S. Treasury bonds and German Bunds to its widest since April 2010 and pointing to more gains for the dollar. The 10-year gap between Treasuries and UK gilts was heading towards a seven-year high after new Bank of England chief Mark Carney also signaled UK rates would stay low. This drove sterling to a near four-month low of $1.4963. "For the most part this morning it has been a rates-view dominated trade, after the ECB and BoE yesterday, spilling over to the FX markets and keeping the euro and sterling low," said Stephen Gallo, currency strategist at BMO Capital Markets. "A much stronger overall employment picture from the U.S. is probably going to make the strength in the dollar against the both these currencies a bit more outsized than it would have been had those policy shifts not occurred." The euro was down 0.3 percent on the day at $1.2880, having hit a five-week low of $1.2869 earlier. The dollar index was up at 83.996, its highest since late May and within reach of its May 23 peak of 84.498. Forecasts are for a 165,000 rise in U.S. employment and the jobless rate inching down to 7.5 percent, edging closer to "the vicinity of 7 percent", which Fed chief Ben Bernanke has signaled as a level at which bond buying could stop. The dollar held close to the 100 yen mark and could re-test Wednesday's one-month high of 100.86. Support was cited at its 50-day moving average of 99.463 yen. Despite the firmness in the dollar, the options market is showing strong demand for dollar/yen puts, or bets the U.S. currency will lose ground, with risk reversal spreads near the widest level in favour of dollar puts in two weeks. Analysts said this was due to speculators unwinding their bets against the yen and in a few weeks time they would have a fresh capacity to sell the yen. But some strategists cautioned against aggressively betting on further dollar strength against the yen. "We now recommended increased caution with long (dollar/yen) positions, given the likelihood of a further corrective setback before the longer-term uptrend is resumed," said strategists at Morgan Stanley. "Strong U.S. data leading to increased tapering expectations and a risk-off environment will put dollar/yen under pressure, in our view."

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