* Dlr edges higher vs euro, falls vs yen after mixed data
* ISM data show service sector contraction
* ADP, Challenger reports signal unease in labor markets
* Focus turning to ECB and BoE policy meetings (Adds comments, details, updates prices)
By Vivianne Rodrigues
NEW YORK, Aug 5 (Reuters) - The dollar edged higher versus the euro on Wednesday as reports showing greater-than-expected U.S. service sector contraction in July and surprisingly high job cuts by private employers boosted demand for the greenback as a safe haven.
The advance contrasts with the dollar's sharp drop earlier in the week as upbeat U.S. and Chinese manufacturing data gave investors confidence to buy foreign currencies and riskier assets such as stocks.
However, Wednesday's lackluster reports signaled more uneasy times for the broader U.S. economy and renewed risk aversion, sending stocks lower and supporting demand for the dollar, traders said.
Increased risk aversion tends to favor currencies such as the yen, a favored safe haven, and the dollar versus higher-yielding counterparts.
"It became a bit hard to support aggressive selling in the dollar versus the euro after this batch of mixed data," said Win Thin, a currency strategist at Brown Brothers Harriman in New York. "This is not going to be a typical economic recovery, which poses a bit of a dilemma for the dollar."
In midday trading in New York, the euro was down 0.1 percent at $1.4390 after trading as high as $1.4437. The euro zone single currency retreated from $1.4445 on Monday, its highest since December.
Against the yen, the dollar was 0.3 percent lower at 94.93 yen.
The Institute for Supply Management said its non-manufacturing index fell to 46.4 in July from June's 47.0. A reading above 50 signals expansion. Economists had expected a reading of 48.0.
The ISM report was much weaker than expected, contributing to a "risk-off kind of scenario" in the foreign exchange markets, favoring the dollar, said Andrew Busch, a global FX strategist at BMO Capital Markets in Chicago.
Another report showed new orders received by U.S. factories rose unexpectedly in June, advancing for a third straight month.
The services sector and new orders figures followed reports showing larger-than-expected job cuts by U.S. private employers in July and an increase in planned layoffs at U.S. firms.
The labor markets data "weighed on risk appetite and consequently revived some demand for safe-haven currencies," said Joe Manimbo, a currency trader at Travelex Global Business Payments in Washington.
Another gauge of the state of the U.S. labor markets is expected on Friday with the government's release of its monthly nonfarm payrolls data.
POLICY MEETINGS
Investors' focus will also be on policy decisions by the Bank of England and European Central Bank due on Thursday.
"People are going to sit tight ahead of the central bank meetings in Europe and the jobs report on Friday," said Thin, at BBH.
A Reuters poll last week showed economists are split over whether the BoE will extend its quantitative easing program, although recent brighter UK economic data are seen reducing such chances. But analysts said it could still not be completely ruled out.
"It would be a brave investor that held on to an aggressively long sterling position into the BoE meeting," Daragh Maher, deputy head of FX strategy at Calyon, said in a note.
Sterling rose earlier to $1.7042, its highest since mid-October. (Additional reporting by Wanfeng Zhou and Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)