* Dlr erases earlier gains vs euro after U.S. data
* ISM data show service sector contraction
* U.S. sheds more private sector jobs in July
* Focus turns to ECB, BoE meetings, U.S. jobs data (Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Aug 5 (Reuters) - The dollar slipped against the yen and erased earlier gains against the euro on Wednesday as investors hoped a slower pace of U.S. private job losses in July hinted at gradual improvement in the economy.
Earlier, safe-haven demand lifted the dollar against the euro after reports showed private employers cut more jobs than expected last month and the dominant services sector shrank again.
But July's job cuts were fewer than those notched in June, leaving investors to hope the government's more comprehensive jobs report on Friday would show labor market improvement.
"The jobs headline was a bit disappointing, but the market has been judging mixed data from a glass-half-full viewpoint. They're trying to focus on the positives," said Michael Woolfolk, currency strategist at The Bank of New York-Mellon.
Indeed, recent manufacturing data from the United States and China has spurred investors to sell dollars and invest in riskier currencies and assets, as did a smaller-than-expected contraction in the U.S. economy in the second quarter.
The focus on positives gained support after Goldman Sachs raised its U.S. real gross domestic product forecast for the second half of the year to 3 percent from 1 percent. ID:nCHB002616.
The euro was last up 0.2 percent at $1.4425, near a session peak of $1.4437 and well off its low at $1.4357. The dollar fell 0.5 percent to 94.80 yen. A clutch of better-than-expected UK data lifted sterling to a near 10-month peak. It was last up 0.5 percent to $1.7028.
Still, Wednesday's mixed data signaled that a U.S. recovery may be a long, drawn-out affair. That pushed Wall Street marginally lower, snapping a four-day winning streak, and boosted U.S. government bond prices.
But the trend to sell the dollar on the view that the worst of the world recession is over has become quite deeply rooted, Woolfolk said, making it tough for the dollar to rally much.
Win Thin, senior currency strategist at Brown Brothers Harriman, said, "This is not going to be a typical economic recovery, which poses a bit of a dilemma for the dollar."
Another report showing a rise in new U.S. factory orders in June, advancing for a third straight month, helped boost market optimism.
From here, investors will focus on Thursday's policy decision from the Bank of England and European Central Bank. That, too, was limiting price action on Wednesday, analysts said.
"People are going to sit tight ahead of the central bank meetings in Europe and the jobs report on Friday," said Thin.
A Reuters poll last week showed economists are split over whether the BoE will inject more money into the economy by extending its asset purchases, although recent brighter UK economic data are seen reducing such chances.
But the risk exists, said Daragh Maher, deputy head of FX strategy at Calyon in London. "It would be a brave investor that held on to an aggressively long sterling position into the BoE meeting." (Additional reporting by Vivianne Rodrigues; Editing by Kenneth Barry)