* U.S. economy adds 171,000 jobs; unemployment rate 7.9 pct * Dollar hits more than 6-month peak vs yen, 1-month high vs euro * Investors turn attention to presidential election on Tuesday By Wanfeng Zhou NEW YORK, Nov 2 The U.S. dollar rallied broadly on Friday, hitting a more than six-month peak against the yen and a one-month high versus the euro, after data showed the U.S. economy created more jobs than expected last month. The greenback added to its gains versus the euro, sterling, Swiss franc and the Australian dollar after the major U.S. stock indexes surrendered gains and turned negative, boosting demand for the safe-haven dollar. Heading into the closing bell, U.S. stocks extended losses, with both the Dow Jones industrial average and the Nasdaq composite index falling 1 percent. U.S. employers stepped up hiring in October by adding 171,000 jobs, exceeding Wall Street's expectations. The unemployment rate ticked higher to 7.9 percent, in line with market expectations, with the increase resulting from more workers restarting their job hunts. "The market briefly traded on the fundamentals," said Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida. "But then we saw as Wall Street gave back its gains, the dollar continued to move higher, at least against the European (currencies)," he added." It looked like at some point, risk aversion returned." The euro fell below its 200-day moving average of $1.2830 to hit a low of $1.2819 on Reuters data - its lowest since Oct. 1. It last traded at $1.2827, down 0.9 percent. The euro has also been weighed down by a Greek court ruling on Thursday indicating that pension reform demanded by foreign lenders may be unconstitutional. That raised concerns about Athens' ability to implement the austerity measures needed to secure bailout funds. The euro zone's common currency has held within the $1.2800-$1.3200 range seen since September, underpinned by the European Central Bank's pledge to buy the bonds of indebted euro-zone countries that seek aid. Signals in the option market showed the pair was likely to trade in a range in coming weeks. The one-month implied volatility on euro/dollar options fell to 7.55 percent . Against the yen, the euro slid 0.5 percent to 103.15 . The dollar hit a high of 80.67 yen, its highest since April 27. It was last at 80.37, up 0.3 percent. Recent soft Japanese data and corporate earnings have pressured the yen. Third-quarter economic output data, due on Nov. 11, is also likely to have contracted. A few Bank of Japan board members warned that a recession in the world's third-largest economy could not be ruled out, given recent weakness in industrial production, minutes of the BOJ's Oct. 4-5 policy meeting showed - a sign more stimulus may be necessary. Against a basket of currencies, the dollar index rose to a nearly two-month high of 80.610. It was last at 80.592, up 0.7 percent. For the week, the euro fell about 0.9 percent against the dollar, the biggest weekly drop since the end of September. The dollar rose about 1 percent versus the yen. With the jobs data out of the way, analysts said investors are quickly turning attention to the U.S. presidential election on Tuesday. Polls show Obama and Republican Mitt Romney locked in a dead heat in a race in which the nation's feeble jobs market has been front and center. "A Romney win will help investor confidence, and that will bring some foreign capital, which has been sitting on the sidelines, back into the U.S. market," driving the dollar and equities higher, Simpson said. Some, however, are less sure about a sustained rise in the dollar as investors fret over the so-called "fiscal cliff" of looming tax rises and spending cuts in the United States. "Over the course of the next month, we would expect to move lower in dollar/yen. Any upside above 81 would be surprising, (given the) U.S. negativity surrounding the fiscal cliff," said Christian Lawrence, currency strategist at Rabobank.
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