* Euro gains 3 pct vs dollar in January, yen loses 5 pct * 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 rose to a 14-month high against the dollar on Thursday, heading for its best month in more than a year, as signs of recovery in the euro zone's economy set the currency on a bullish trend. The yen fell, extending its recent decline on expectations of further monetary easing in Japan. The dollar was on pace for a monthly gain of 5.2 percent versus the yen, while the euro rallied 8.3 percent, the best month 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. 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 did little to change to the currency's rising trend. By contrast, the U.S. Federal Reserve on Wednesday sent no signal that its bond-buying stimulus plan may end anytime soon, keeping the negative bias in the dollar. Focus is shifting to U.S. nonfarm payrolls data (NFP) on Friday, which will shed light on the health of the labor market. The Fed said the U.S. jobs market would continue to improve at a modest pace, and pledged to keep purchasing securities until unemployment falls "substantially". "We're looking at dollar weakness to persist," said Eric Viloria, senior currency strategist at Forex.com in New York. "The NFP number probably isn't going to change the outlook in terms of Fed policy because even if you have a number that's a lot better than expected, they need to see sustained improvement in the labor market." The euro rose as high as $1.3593 on Reuters data, its strongest level since November 2011, and was last up 0.1 percent at $1.3583. It was on track for a 3 percent rise this month, the biggest since October 2011. 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 rose 0.3 percent to 123.92 , having hit as high as 124.14 yen, the strongest level in 33 months. The dollar climbed 0.2 percent to 91.24 yen, not far from a high of 91.40 yen set on Wednesday, its strongest level 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 of 90.32 to 91.41 yen. 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. A Bank of Japan deputy governor shrugged off criticisms overseas, sending the strongest signal yet that it will boldly implement more stimulus if needed to achieve the bank's new 2 percent inflation target. 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.