* Euro gains 2.8 percent vs dollar in January, yen loses 4.8 percent * Fed keeps bond-buying stimulus in place, dollar negative * Focus shifts to Friday's U.S. nonfarm payrolls data By Wanfeng Zhou NEW YORK, Jan 31 The euro was headed for its best month in more than a year against the dollar on Thursday, as signs of recovery in the euro zone's economy and banks set the currency on a bullish trend. The yen tumbled broadly in January on expectations of further monetary easing in Japan. The dollar was on pace for a gain of 4.8 percent versus the yen, while the euro rallied 7.9 percent, the biggest monthly rise since February 2012. "The overall recent trends are intact. The euro probably wants to go higher and the yen probably wants to go lower," said Nick Bennenbroek, head of currency strategy, at Wells Fargo Bank in New York. The euro was little changed at $1.3563 on Thursday, not far from Wednesday's high of $1.3587, its strongest level since November 2011. It was on track for a 2.8 percent rise this month, the biggest since October 2011. Weak German retail sales data released on Thursday slightly dented the bullish sentiment on the euro, but it was offset by a strong reading on the country's labor market and does little to change to the currency's rising trend. By contrast, the Federal Reserve on Wednesday sent no signal that its bond-buying stimulus plan may end anytime soon, keeping the negative bias in the dollar. A huge fourth-quarter loss reported by Deutsche Bank weighed on the euro, while traders said month-end flows could trap it in a range and leave it below a reported option barrier at $1.3600. Further upside targets are at $1.3640, the high in mid-November, 2011, and $1.3833-35, the 61.8 percent retracement of the move down from May 2011 to July 2012, which also coincides with the July 2011 low. Against the yen, the euro slid 0.1 percent to 123.47 . The dollar was little changed at 91.12 yen, having hit a high of 91.40 yen on Wednesday, its strongest level versus the yen since June 2010. The dollar has rallied 12 percent versus the yen since mid-November. Traders noted reportedly large options expiries due later on Thursday at 90.00 and 91.50 yen were likely to keep the dollar within this week's range from 90.32 to 91.41 yen. Focus will now turn to U.S. jobs data on Friday, which will shed light on the health of the labor market. The Fed said the U.S. job market would continue to improve at a modes pace, and pledged to keep purchasing securities until unemployment falls "substantially." While the Fed and the Bank of Japan both signalled more stimulus, the European Central Bank said last week that banks would pay back a greater-than-expected amount in loans. The ECB is the first major central bank to start unwinding some of its unconventional monetary policy measures. Some analysts said the euro also gained as fears of a Greek exit and a breakup of the euro zone eased, prompting investors to reinvest in the region after shunning it much of last year. "The euro could rise a few more percent from here," said Richard Falkenhall, currency strategist at SEB in Stockholm. European politicians have ramped up talk of a "currency war" as the euro has been the biggest beneficiary of weakness in the yen and the dollar. But ECB policymakers have maintained a view that the euro is well within its long-term averages, reflecting little desire to curb its recent strength.