* Dollar gains against yen, euro after solid jobs report
* Euro at 11-month high, dollar at six-month high vs yen
* Policy divergence, widening differentials push yen lower (Adds quotes, updates prices, changes byline, changes dateline previous LONDON)
By Julie Haviv
NEW YORK, April 1 (Reuters) - The dollar gained broadly on Friday, rallying to its highest level in more than six months against the yen as solid U.S. employment data further widened yield differentials.
U.S. employment recorded a second straight month of solid gains in March and the jobless rate fell to a two-year low of 8.8 percent, marking a decisive shift in the labor market that should help to underpin the economic recovery.
Prior to the New York session, the dollar/yen blew past its 200-day moving average for the first time since June 2010. The dollar last traded up 1.6 percent at 84.48, a high of more than six months.
Against the yen, the euro leaped to an 11-month high. It last traded up 1.1 percent at 119.05.
The euro was down 0.4 percent at $1.4102. Market participants said options-related barriers around $1.4250 would cap any upside in the single currency for the moment. A break above that level would open the way to $1.4293, a peak hit in November.
Against a basket of currencies, the dollar was up 0.7 percent at 76.379.
While the European Central Bank will likely be the first central bank to raise rates at its policy meeting next week, Friday's payrolls report brings closer the day when the Federal Reserve may raise benchmark interest rates.
U.S. federal fund futures extended losses after the payrolls data, with the January 2012 contract trading 6.5 ticks lower at 99.605.
"We expect more (jobs) to be created the rest of the year. It's definitely a short-term positive for the likes of dollar/yen and we also got a move in the dollar versus the euro," said David Mann, regional head of research for the Americas at Standard Chartered in New York.
The Bank of Japan is widely expected to lag behind the Fed and the European Central Bank in raising interest rates, especially in the wake of the March 11 earthquake and tsunami.
An improving U.S. economy bolsters the argument for tighter monetary policy and should further widen dollar/yen yield differentials.
That would enhance the yen's appeal as a funding currency of choice amongst investors like hedge funds and model funds, which are increasingly looking to sell the yen and buy high-yielding currencies, called carry trades.
Boris Schlossberg, director of research at GFT Forex in New York, said the carry trade has "come back with a vengeance" and the "yen could assume its former status as the funding currency for the carry trade, weakening progressively as rates in the rest of the G-20 begin to rise."
A series of hawkish comments by Fed officials recently has helped drive U.S. Treasury yields higher this week and caused the dollar's yield advantage over the yen to widen.
That spread widened further on Friday, with two-year Treasury yields, the most responsive to Fed policy, hitting their highest levels since May 2010.
While markets are pricing in at least three ECB rate hikes this year, investors are wary that a sustained rise in rates could push up funding costs for peripheral euro zone countries and add to their debt woes. (Additional reporting by Gertrude Chavez-Dreyfuss in New York and Anirban Nag in London; Editing by Kenneth Barry)