* U.S. dollar stays soft after Friday's weak jobs data
* Dollar may bounce on U.S. ISM non-manufacturing data
* Kiwi dollar slides as bacteria found in NZ milk products
* Strong UK data lifts sterling; RBA decision awaited
By Julie Haviv
NEW YORK, Aug 5 (Reuters) - The dollar slumped against the yen on Monday, remaining under selling pressure after Friday's jobs figures lessened expectations that the Federal Reserve would start reducing its bond purchases in the near term.
U.S. employers slowed their pace of hiring in July, which could make the Fed more cautious about scaling back its monthly $85 billion bond-buying program and keep the dollar under pressure.
The Fed's asset purchase program, called quantitative easing, is negative for the dollar as it is tantamount to printing money. Less stimulus, however, could prod a rise in interest rates and potentially make the dollar more attractive for investors.
The dollar may bounce on U.S. ISM non-manufacturing data to be released at 10 a.m. ET.
"The service sector accounts for nearly 80 percent of U.S. employment and a pick-up here may be interpreted as bolstering the probability of a reduction in the size of the Federal Reserve's monthly asset purchases at September's FOMC meeting," said Ilya Spivak, currency strategist at DailyFX in New York.
"Such an outcome is likely to be broadly supportive for the U.S. dollar, but may weigh on risky assets including shares and cycle-geared commodities (like crude oil)," he said.
In early New York trade, the dollar was down 0.3 percent at 98.62 yen.
The big mover of the day was the New Zealand dollar, which tumbled to a one-year low against the U.S. dollar after New Zealand's major dairy exporter, Fonterra, said it had found bacteria in some of its products that could cause botulism.
China halted the import of some dairy products from New Zealand and Australia in response.
The New Zealand dollar was down 1 percent at $0.7756 .
Dairy produce accounts for about a quarter of New Zealand's export earnings and any development that could hurt its exports typically causes the currency to fall.
"If this scandal worsens and if more countries put a ban on New Zealand's dairy imports ... then I would imagine the New Zealand dollar would weaken," said Jane Foley, senior currency strategist at Rabobank, adding it could drop towards $0.70.
However, she said the currency would recover if the crisis was managed well by the New Zealand authorities.
The kiwi would come under additional pressure if the dollar, which fell after Friday's below-forecast U.S. jobs data, resumed its recent upward trend. The next key chart support for the New Zealand currency was at the June 1, 2012 low, $0.7456.
"There was an exuberance in the market relative to the significance of the milk scandal, but other factors may drive the New Zealand dollar lower in the medium term," said Hans Redeker, head of global FX strategy at Morgan Stanley.
He said New Zealand's substantial foreign liabilities - it had a current account deficit of 4.8 percent of GDP at the end of March - made it particularly vulnerable to falls in investor appetite for risk.
Morgan Stanley's Redeker said the dollar could extend falls towards 94 yen near term, but he expected it to recover after that and remained "very upbeat" on U.S. economic prospects.
The euro dropped 0.3 percent to $1.3248, stuck below chart resistance around $1.33 and last week's peak of $1.3344.
The Australian dollar was down 0.1 percent at $0.8888, having earlier hit a three-year low of $0.8848 after weak retail sales data bolstered expectations Australia's central bank would cut interest rates on Tuesday.
The UK pound rose 0.3 percent to $1.5338, lifted by a very strong UK services sector survey.