CORRECTED-FOREX-Dollar hits 1-month high vs yen while euro gains broadly

(Corrects dollar versus yen figure in 8th paragraph)
* Dollar gains vs yen on lowered expectations of Fed action
* U.S. jobless claims point to healing labor market
* Euro sentiment remains negative

By Julie Haviv
NEW YORK, Aug 16 (Reuters) - The dollar hit a one-month high
against the yen on Thursday as U.S. data showed new jobless
claims rose in the latest week, amid cooled expectations for
further monetary easing by the Federal Reserve.
The dollar pared gains after data showed the number of
Americans filing new claims for jobless benefits edged higher
last week. But, a trend reading fell close to a four-year low,
pointing to healing in the still-struggling labor
market.
The pickup in hiring last month, however, along with gains
in retail sales and manufacturing output, has lowered
expectations the Federal Reserve could soon boost efforts to
help the economy with a third round of bond purchases. Officials
at the Fed next review policy on Sept. 12-13.
"The market's attention is on rising US yields as the
expectations for QE3 fades after a string of stronger than
expected data," said Camilla Sutton, chief currency strategist
at Scotia Capital in Toronto.
Quantitative easing is negative for the dollar as it is
tantamount to printing money and dilutes its value. Lowered
expectations of a third round of QE have pushed Treasury yields,
which move inversely to price, higher.
Higher yields have made the dollar more attractive to
investors, particularly against the yen.
"However the shift has been far less dollar positive than
one would expect," Sutton said, who noted that since U.S. yields
bottomed late last month, the Canadian dollar, Australian
dollar, euro and British pound have performed well against the
greenback while the yen has dropped in price.
The dollar last traded at 79 . 24 yen, up 0. 3 percent,
b ut down from a one-month high of 79.39 hit earlier in the
session.
Other data showed groundbreaking on new U.S. homes fell in
July in a reminder of the housing market's weakness despite some
recent signs of recovery.
Traders and analysts said if U.S. Treasury yields continue
to rise the dollar could add to gains against the yen given the
strong relationship the currency pair has with yield spreads
between U.S. and Japanese government bonds.
"As long as yields rise in the U.S., dollar/yen will
respond," said Steve Barrow, head of G10 currency research at
Standard Bank. But he said moves tend to be slow.
He said the dollar could rise to 80 yen or just beyond but
it was unlikely to rise further.
"Even without more quantitative easing the economic backdrop
in the U.S. is such that yields will stay low."
The euro firmed versus the dollar, though investors stayed
wary of selling it too aggressively due to expectations the
European Central Bank would eventually buy bonds to reduce the
borrowing costs of Spain and Italy.
The euro last traded at $1.2334, up 0.4 percent on
the day. The euro rose 0.7 percent against the yen at
97.70.
Sentiment towards the euro remains broadly negative due to
worries about euro zone debt problems, but the euro's falls are
expected to be limited as investors wait to see whether the ECB
takes any action next month.
A Reuters poll in early August showed the ECB was seen as
likely to begin buying Italian and Spanish bonds in September
and to cut its main refinancing rate to a record low of 0.5
percent.

(Additional reporting by Jessica Mortimer in London; Editing by
Bernadette Baum)