* Dollar index slips before U.S. payroll data
* Speculation of smaller jobs slide boosts risk demand
* Euro supported after ECB cuts rates, plans asset buys
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By Naomi Tajitsu
LONDON, May 8 (Reuters) - The dollar slipped a touch on Friday ahead of a key U.S. employment report, as expectations that the pace of job losses may be slowing prompted some traders to take on more risky positions.
Trade was quiet in European trade following a muted reaction to results of a U.S. bank stress test, which did not yield any negative surprises. Choppy moves calmed from Thursday, when the central banks of the UK and the euro zone took more policy action to help their ailing economies.
Many traders opted to stick to the sidelines ahead of U.S. non-farm payrolls for April, which are due at 1230 GMT. Expectations are for the economy to have shed 590,000 jobs, a staggering number, but less than 663,000 in March.
The dollar slipped against a basket of currencies, and stuck near a 1 1/2-month low hit on Thursday, as speculation of a fairly optimistic jobs reading prompted some traders to pick up the euro and sterling -- currencies perceived to hold higher risk.
"In previous months, it's always been how much worse the payrolls will be but this month the shoe is on the other foot and people are hoping for a positive surprise," said Johan Javeus, chief currency strategist at SEB Merchant Bank in Frankfurt.
"Normally, people reduce risk ahead of key data, but today people might bet that the payrolls number will actually turn out better than expected."
Analysts said that a positive reading would normally boost the dollar on the view that the economy may finally be recovering. Yet given the focus on risk demand, solid data may boost the market's appetite for risk, which could put the dollar under selling pressure.
DOLLAR INDEX NEAR 1-MTH LOW
The dollar index, which tracks its movement against a basket of currencies, slipped around 0.2 percent to 83.755. On Thursday, it slipped to 83.424, its lowest since late March.
The euro climbed as high as around $1.3432 in early European trade, rising 0.2 percent on the day and recovering from a session low of $1.3343. By 0756 GMT, it was at $1.3403, little changed from the previous session.
The common European currency was supported near a one-month high of $1.3471 hit on electronic trading platform EBS on Thursday, when the European Central Bank cut interest rates to a record low 1.0 percent and said it would start buying 60 billion euros' worth of covered bonds to boost credit liquidity.
While such unconventional policy measures and forays into quantitative easing have stung currencies in the past, the euro rose after the announcement on the view that the ECB was taking action -- however limited -- to save the euro zone's ailing economy.
Sterling was little changed at $1.5026, having fallen from a four-month high around $1.52 on Thursday after the Bank of England said it would follow up its 75 billion pound asset-buying plan with an additional 50 billion pounds to help boost the economy.
The dollar inched up 0.1 percent to 99.35 yen
Speculation that Friday's jobs data may be stronger have risen due to a slide in unemployment claims in past weeks, while data earlier this week showed the U.S. private sector in April eliminated the fewest jobs since last November and far fewer than in March.
"The downward move over the past four weeks in claims, along with improvement in the employment indexes in the ISM surveys, is signalling some fading in the rate of contraction in payrolls," analysts a UBS wrote in a research note.
(Reporting by Naomi Tajitsu; Editing by Ruth Pitchford)