NEW YORK (AP) — The dollar weakened against the euro last Friday despite a strong US jobs report, as it failed to reverse expectations that the Federal Reserve's next move on interest rates could be a reduction.Non-farm payrolls increased 132,000 in June, which was close to consensus, while May's data were revised up to an impressive 190,000 increase. The unemployment rate, meanwhile, remained low at 4.5 percent.

But despite the data, interest rate futures continued to price in odds that the Fed, in an effort to stimulate the economy, may start cutting rates next year after probably leaving them on hold throughout 2007.

This, analysts said, has led investors to lose some confidence in the greenback.

"The failure of the dollar to benefit from strong US data supports the view that the risk premium for dollar-denominated assets is on the rise," said Naomi Fink, currency strategist at BNP Paribas.

Continued worries about subprime problems encountered by two Bear Stearns hedge funds and a weakening housing sector are key factors weighing on the dollar.

Friday afternoon in New York, the euro was at $1.3623 from $1.3598 late Thursday, while the dollar was at 123.39 yen from 122.90. The euro was at 168.09 yen from 167.10 late on Thursday. Sterling was at $2.0107 from $2.0118, while the dollar was at 1.2183 Swiss francs from 1.2173 late Thursday.

Despite the dollar's struggles against the euro, the strong jobs report helped the buck regain its footing against the yen and exit the session stronger than its day-earlier numbers.

The dollar's rise against Japan's currency, however, may have been more a question of yen weakness than greenback strength. The euro pushed above Y168 against the yen for the first time ever on Friday, suggesting the yen's problems are widespread.

And the dollar had already begun to advance on the yen overnight, after Bank of Japan Gov. Toshihiko Fukui offered no clear picture of when the central bank may raise its ultra-low interest rates.

Nonetheless, Fukui did remain upbeat on the economic outlook for Japan. "The long-lasting economic expansion will continue, based on a favourable cycle led by production, income and consumption," the BOJ chief said at the opening of the central bank's quarterly branch managers' meeting.

Analysts said the BOJ will probably leave rates on hold at a meeting next week, but remain confident that the bank could hike its key rate to 0.75 percent in August or September from the current 0.50 percent.

Elsewhere, sterling suffered overnight despite a government report that showed UK manufacturing output reached its strongest level in almost six years in May. But the UK pound rebounded during the New York session on the back of general dollar weakness and ended the session little changed from day-earlier numbers.

Sterling is one of the best-performing currencies among the majors, and on Wednesday reached a 26-year high of $2.0206 against the dollar on expectations that the Bank of England will continue to hike rates this year.

Elsewhere, Canada's dollar surged to a fresh 30-year high Friday, boosted by general weakness in the US dollar and a Canadian jobs report showing Canada's economy created more than twice as many jobs as expected in June.