* Investors mull whether dollar buying will last
* Dollar slips vs yen partly on Japanese exporter selling
* But risk of dollar/yen drop seen fading
* Fed Reserve meeting, retail sales to be focus this week
By Kaori Kaneko
TOKYO, Aug 10 (Reuters) - The dollar retained most of its gains against a basket of currencies on Monday but lost ground to the yen as Japanese exporters and short-term speculators took advantage of its jump the previous session on U.S. jobs data.
The dollar rose 2 percent against the yen on Friday and gained more than 1 percent against the basket after the July U.S. jobs report gave the clearest indication yet that the economy is turning around from a deep recession.
For much of the past few months, the dollar has tended to fall after upbeat numbers on the economy, as expectations of recovery prompted investors to take on more risk and eroded demand for safe-haven currencies such as the greenback.
That dynamic, which pushed the dollar to a 10-month low on the six-currency basket last week, could be changing as the market speculates that rates could rise sooner than expected, analysts said, although they warned this could be premature.
Traders said part of the dollar's gains on Friday stemmed from players correcting short positions accumulated in the past few months.
"The market seems to have focused on the U.S. economic fundamentals themselves in the wake of better-than-expected jobs data, which is lagged data," said a trader at a Japanese trust bank.
"But it remains to be seen whether this dollar buying will last. I think that the dollar will again stay under selling pressure as more debt issuance is coming this year," he said.
The dollar index dipped 0.3 percent to 78.747, having jumped more than 1 percent on Friday.
"Part of U.S. dollar's snap, crackle and pop can be attributed to the fact that it has been under almost relentless assault for much of the past several months," said David Watt, senior currency strategist at RBC Capital. "A relief rally was overdue."
The euro rose 0.2 percent to $1.4205, after falling more than 1 percent on Friday, but was below its best level this year of $1.4448, set on trading platform EBS last week.
DOLLAR/YEN RISK REVERSALS
The dollar fell 0.3 percent to 97.21 yen after hitting its highest in about eight weeks of 97.79 yen on Friday, with traders citing dollar-selling by Japanese exporters.
Dollar/yen risk reversals fell sharply in the wake of the U.S. jobs data, with one-month risk reversals for dollar/yen favouring yen calls by 0.55/1.3 percent. The bid rate dipped to 0.50 percent at one point, the lowest since May.
"The fall in risk reversals likely reflects a decline in the risk of the yen surging beyond 95 to the dollar," said Takahide Nagasaki, chief FX strategist for Daiwa Securities SMBC.
But that does not mean the dollar is poised to rally above 100 yen, he said. "Unless a scenario for U.S. interest rates to head higher becomes more realistic, I think the dollar will rise to 100 yen at best," Nagasaki said.
A focal point this week is a two-day meeting of the Federal Reserve starting on Tuesday.
Fed policy-makers are likely to allow a controversial scheme to buy $300 billion of longer-dated Treasuries to end on schedule in September.
They are expected to hold the overnight fed funds rate in a range between zero and 0.25 percent and to try to dampen expectations that rates will rise any time soon.
Although it is unclear whether the Fed will say so explicitly, the central bank probably does not want to see market interest rates such as bond yields surge at a time when the U.S. economy is in the midst of recovering from a deep downturn, said Hiroshi Maeba, deputy managing director of foreign exchange trading at Nomura Securities.
"It is only an improvement amid poor conditions. If interest rates were to rise in this situation, that may pour cold water on the recovery," Maeba said about improving economic indicators such as Friday's jobs data.
"I don't think they want to see interest rates rising sharply under such conditions," Maeba said, referring to the Fed. (Additional reporting by Masayuki Kitano and Satomi Noguchi in Tokyo and Anirban Nag in Sydney; Editing by Joseph Radford)