* Dollar rises on profit taking before U.S. payrolls
* ECB holds rates at 1.0 percent as expected
* China quells FX reserves speculation, supports dollar
(Updates comments, prices, adds detail)
By Naomi Tajitsu
LONDON, July 2 (Reuters) - The dollar rose on Thursday, recovering from a near three-week low against the euro as traders booked profits on short positions in the U.S. currency ahead of key U.S. unemployment figures due later in the day.
The euro offered limited initial reaction to the European Central Bank's decision to hold rates at a record low 1.0 percent. The single currency sank to the day's low after ratings agency Moody's downgraded its credit rating on Ireland.
Analysts said the dollar was supported on the view that payrolls due at 1230 GMT may come in weaker than expected. The U.S. economy is expected to have shed 363,000 jobs in June, more than the 345,000 lost in May..
"The market in general is expecting a weak number. Given the ADP figures, we could see the number come on the downside of expectations." said Lauren Rosborough, senior currency strategist at West LB in London.
A report from ADP Employers Services on Wednesday showed that U.S. private employers slashed a bigger-than-expected 473,000 jobs in June.
By 1200 GMT, the euro was down 0.6 percent at $1.4065, retreating from $1.4202 hit on Wednesday, its highest since early June.
The euro hit the day's low of $1.4048 according to Reuters data, after Moody's cut its sovereign rating for Ireland to Aa1 from AAA with a negative outlook on concerns that the country would have a higher debt burden for the foreseeable future
The euro offered little reaction to data on Thursday showing euro zone unemployment hit a 10-year high of 9.5 percent in May, while producer prices fell 0.2 percent on the month in May, compared with forecasts for a 0.1 percent rise.
The dollar index rose half a percent to 80.015, supported as a 0.8 percent slide in European shares kept traders averse to risk, prompting some safe-haven demand for the U.S. currency.
Rosborough at West LB said the dollar was also supported as traders trimmed short positions in anticipation that a weak payrolls reading may prompt more risk aversion.
TRICHET AWAITED
Most market participants had expected the ECB to hold rates, and analysts said that traders were anticipating a press conference by ECB President Jean-Claude Trichet at 1230 GMT to see if he offers details on the ECB's asset buying plans.
"What markets will be looking for (at the press conference) are technical details on the covered bonds scheme and any comments on the 442 billion euro allocation last week," said Philip Shaw, chief economist at Investec in London.
"In addition, Trichet will be grilled on the ECB's outlook for the economy and how things are progressing."
Also helping to support the dollar were comments from a Chinese Foreign Ministry official who quelled speculation about currency reserves diversification.
The U.S. currency fell on Wednesday after G8 sources told Reuters China had asked for a debate on proposals for a new global reserve currency.
The Swedish crown fell after Sweden's central bank surprised markets by cutting its key repo rate by 25 basis points to 0.25 percent on Thursday. The euro rose as much as roughly 1 percent on the day to 10.8400 crowns, Reuters data showed.
The Swiss franc hit the day's low of 1.5250 per euro from around 1.52 after a Swiss National Bank official said the central bank was prepared to continue currency interventions to stem strength in the domestic currency. (Additional reporting by Harpreet Bhal; Editing by Andy Bruce)