* Euro maintain gains from 10-month low hit a week ago
* Investors relieved new govt in Rome does not want exit from euro
* Dollar underpinned by strong U.S. economic data
* Implied volatilities subdued despite bevy of upcoming events
* A$ slips after RBA stands pat
By Hideyuki Sano
TOKYO, June 5 (Reuters) - The euro was supported by signs of stability in Italian politics and the dollar maintained an uptrend against the yen after a strong U.S. jobs report sparked bets of three more U.S. rate hikes by the end of year.
In early Asian trade, the euro traded almost flat at $1.1687 , having reached $1.1745 the previous day, its highest level since May 24.
Since hitting a 10-month low of $1.1510 a week ago, the common currency has been recovering as investors took comfort from the formation of a coalition government in Rome.
The big spending plans of the two anti-establishment parties that make up the coalition have raised some concerns, but new Economy Minister Giovanni Tria has said that none of the parties want to leave the euro zone and neither does he.
The common currency rose to 128.50 yen, up 3.0 percent from an 11-month low of 124.82 yen touched a week ago.
The dollar traded at 109.95 yen, up 0.1 percent and extending its recovery from a five-week low of 108.115 yen touched on Tuesday.
Strong U.S. employment data published on Friday revived bets that the Federal Reserve will raise interest rates three more times this year.
The Fed is widely expected to raise rates at its policy meeting next week, following up on a rate hike in March.
“The U.S. jobs data was really strong. The Fed could indicate it will raise rates four times this year, including an expected hike in June and one in March,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
“That would widen interest rate differentials between U.S. and Japan and should support the dollar against the yen,” he added.
Still, market players cautioned that the U.S. currency could suffer a fresh setback if worries about a trade war between the United States and the rest of the world intensify.
Canadian Prime Minister Justin Trudeau will play host to a summit of the Group of Seven leading industrialised nations, with six of the seven members outraged at the United States over a slew of recent protectionist moves by President Donald Trump.
“We have lots of uncertain factors. Sino-U.S. trade spats are the biggest of all but we also have U.S.-North Korea summit on 12th, the Fed’s policy announcement on the 13th, which will be followed by the European Central Bank and the Bank of Japan,” said Shintaro Ikeshima, chief manager of forex and financial products trading division at Mitsubishi UFJ Trust and Banking Corp.
“Still on the whole, the dollar is likely to be bid up as market players are likely to position for the chance of more rate hikes by the Fed towards the 13th,” he said.
Despite heavy event schedule, currency option markets are hardly pricing in a jump in market volatility. One-month implied volatilities on euro/dollar fell to around 7 percent from last week’s high around 9 percent and those on dollar/yen dropped below 7 percent from 8.5 percent.
The Australian dollar slipped a tad after the Reserve Bank of Australia kept its policy on hold as widely expected, after 1.05 percent gain on Monday, its second biggest gain so far this year.
The Aussie traded at $0.7633, down 0.2 percent on the day. On Monday it had hit a six-week high of $0.76665, thanks in part to surprisingly robust local corporate profits and retail sales data. (Reporting by Hideyuki Sano; editing by Simon Cameron-Moore)