* Euro falls after Nowotny says QE has valuable role
* Investors look ahead to December Fed meeting (Updates prices, adds details)
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 8 (Reuters) - The dollar dropped from a seven-year high against the yen and a two-year peak versus the euro on Monday, as investors consolidated gains made following a strong U.S. jobs report that is expected to trigger an interest rate increase next year.
The greenback's outlook remained upbeat despite Monday's fall. Investors were already looking ahead to the December monetary policy meeting of the U.S. Federal Reserve next week, watching for a change in the statement's language to a more hawkish tone.
The dollar posted its largest one-day loss against the yen since mid-October, falling after four straight days of gains. On the year, however, the dollar was still up 14 percent.
The U.S. currency's losses were in line with the drop in Treasury debt yields and stocks. The benchmark U.S. 10-year note yield was last at 2.24 percent, down from 2.31 percent last Friday.
"We're drifting off in the dollar and this is just consolidation," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "All the signs point to a stronger dollar. Oil prices are down, we have a Fed meeting next week and some are pointing to a possible change in language."
Earlier in the session, the dollar soared to a fresh two-year high against the euro, a seven-year high versus the yen and touched a five-year peak versus a currency basket. It also rose to its highest in 15 months versus the pound.
The euro stumbled after Ewald Nowotny, the Austrian central bank chief, said government bond buying could be valuable in addressing the "massive" weakening of the euro zone economy.
The euro fell to a low of $1.2247 after Nowotny's comments, but was last up 0.4 percent at $1.2332.
"Markets are pretty much pricing in a Fed rate hike by the middle of 2015 and a growing likelihood of the ECB unleashing full scale QE (quantitative easing) in the months ahead," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar surged to 121.84 yen, before falling 0.8 percent to 120.52 yen. Japan's national election on Dec. 14 is seen as likely to give a boost to Prime Minister Shinzo Abe and reflationary policies that should further weaken the yen.
The dollar index climbed as high as 89.550, its highest since March 2009. The index was last at 89.047, down 0.3 percent. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Jeffrey Benkoe and Chizu Nomiyama)