* Dlr rally loses steam; jitters set in ahead of jobs data
* Euro still seen vulnerable with pressure staying on ECB
* US ADP report in focus ahead of non-farm payrolls
* Japan to scrap taxes for foreign investors - report
(Changes dateline, byline, recasts, adds quotes, updates prices; previous TOKYO)
By Veronica Brown
LONDON, Jan 7 (Reuters) - The dollar fell broadly on Wednesday, with its recent run to one-month high's against the euro and yen losing steam as jitters began to surface on the state of the U.S. employment market.
The speed of the dollar's rise also made it vulnerable to profit-taking, with dealers citing central bank buying of euros at lower levels for reserve-management purposes and interest from funds.
But the euro area and, by extension, the single currency's vulnerability were never far from investors' radars as data from Germany showed a larger-than-expected rise in unemployment.
The U.S. ADP private employment report, due at 1315 GMT, is expected to show that 473,000 jobs were shed in December. The report is seen by some as a precursor to key U.S. non-farm payrolls numbers on Friday that are expected to make sobering reading.
"The dollar rally is showing signs of fatigue. Maybe there is a bit of nervousness ahead of the U.S. non-farm payrolls on Friday," said Audrey Childe-Freeman, senior currency strategist at Brown-Brothers Harriman in London.
"The depressed state of the economy is something that is priced into the market already, but we've seen a remarkable recovery in the dollar and that's losing momentum. Plus non-farm payrolls will present a pretty ugly picture," she added.
By 0855 GMT, the euro was up 0.7 percent on the day at $1.3605, having dipped to a one-month low of $1.3308 on Tuesday according to Reuters data.
The dollar fell 0.4 percent against a basket of six major currencies to 82.585, while it also retreated 0.6 percent to 93.04 yen after hitting one-month highs the previous day.
The single currency clawed back some of its major losses against sterling to stand at 91.35 pence but stayed some way off record highs scored above 98 pence in late December.
The yen gave up some gains in the global session on a newspaper report that Japan's government will seek to scrap capital gains taxes for foreigners investing in Japanese companies through funds, which could encourage capital flows into the country.
EURO ZONE WEAKNESS
Persistent signs of economic weakness in the euro zone that may force its central bank to cut interest rates remained in focus after data on Tuesday showing a fast fall in inflation.
The dollar had been drawing strength this week from early 2009 gains in Wall Street shares, which also helped the currency market to ignore dismal U.S. economic data including Tuesday's figures showing a steep drop in factory orders and pending home sales in November.
"U.S. stocks, hopes for Obama, and a reversal of the broad dollar-selling positions made in December will support the dollar, possibly until Obama officially takes office later this month," said Kengo Suzuki, a currency strategist at Shinko Securities in Tokyo.
"But the state of the U.S. economy is so miserable. That will prompt market players sooner or later to question the wisdom of extended dollar buying," he added.
The Federal Reserve's most recent policy meeting suggested the central bank is concerned that downside risks remain substantial, with the central bank seen determined to employ whatever measures are needed to keep rates low
(Additional reporting by Satomi Noguchi in Tokyo)
(Reporting by Veronica Brown; Editing by Victoria Main)