* Dollar holds most gains vs euro, currency basket
* Greenback still supported after strong payrolls
* Analysts see consolidation ahead of Fed meeting
(Adds comment, details, updates prices, changes byline, changes dateline, previous LONDON)
By Nick Olivari
NEW YORK, Aug 10 (Reuters) - The dollar slipped against the euro and a basket of currencies on Monday as investors considered last week's broad rally on surprisingly strong U.S. jobs figures may have been too far, too fast.
The U.S. currency posted strong gains on Friday and was still supported as the new trading week opened by data showing a smaller-than-expected fall in U.S. payrolls, which suggested employment may be turning the corner after months of extreme weakness.
Investors were waiting to see if the dollar's latest move was a sign of a breakdown of the recent correlation between the U.S. currency and risk demand -- in which economic data suggesting an improving global economy would batter a dollar trading off the ensuing pick-up in risk appetite.
"The currency's weak reaction to Friday's stronger-than-expected non-farm payrolls was interesting; highlighting for the first time in many quarters that good news for the U.S. economy might finally be positive for the U.S. dollar," said Camilla Sutton, currency strategist at Scotia Capital in Toronto in a research note. "We will have to see more evidence that this is how the market is now prepared to trade currencies."
In early New York trade, the euro was 0.1 percent higher at $1.4195, but not far off a one-week low around $1.4154 hit on electronic trading platform EBS in the aftermath of Friday's data.
The euro brushed off a surprisingly strong reading of euro zone sentiment on Monday. The Sentix index produced a -17 reading for August, improving from -31.30 last month.
Against a currency basket, the dollar was 0.1 percent lower at 78.882.
The dollar inched down 0.4 percent against the yen to 97.13 yen, after rallying as high as 97.79 yen on EBS, its strongest in nearly eight weeks, on Friday.
Dollar selling by Japanese exporters in the Tokyo session weighed on early dollar/yen trade, market participants said.
Some analysts said a post-payrolls rise in Treasury yields helped to support the dollar as it increased the appeal of U.S. debt for some investors, including those from overseas.
FED AWAITED
Analysts said that whether the dollar extends its latest gains may hinge on the actions of the Federal Reserve, which ends a two-day policy meeting on Wednesday.
The central bank is seen holding the fed funds rate at 0-0.25 percent, and some say it may try to discourage speculation of a near-term rate rise, after the payrolls boosted expectations of possible monetary tightening.
Markets are currently fully pricing a 25 basis point rate hike by the end of January.
Barclays Capital said the proximity of the payrolls and the Fed meeting may explain the dollar's broad jump.
"Our U.S. economists expect no increase in asset purchases and a more upbeat tone on the economy," Barclays said in a note.
"In our view this would likely be a USD positive and may herald a period where positive news for U.S. yields continues to be a USD positive."
The Bank of Japan will announce its rate decision on Tuesday, while Norway's central bank will end a policy meeting on Wednesday. (Additional reporting by Kirsten Donovan in London; Editing by Andrea Ricci)