* Euro reverses year-end gains
* Worries about euro zone debt continue to haunt euro
* Friday's U.S. jobs, Bernanke remain key
(Adds quotes, updates prices, changes dateline; previous LOND0N, adds byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Jan 3 (Reuters) - The euro slipped against the dollar on Monday in the first trading session of 2011 and may likely extend its downtrend, as traders pared back their exposure to the euro on nagging concerns about euro zone debt.
Thinned trade due to holidays in Tokyo and London added to volatility in the euro/dollar pair, which reversed year-end gains.
"The euro is trading with a heavier tone. I think traders are trying to cut back their exposure on the euro as volumes normalize and given continued problems in the euro zone," said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington.
The euro ended the 2010 around 6.5 percent lower against the dollar, its biggest annual drop since 2005, weighed down by a debt crisis that hit Greece and Ireland.
The single euro zone currency, however, had climbed last week, hitting roughly three-week highs versus the dollar, as bears gave up their positions, frustrated by the currency's firm support at its 200-day moving average just below $1.31. Gains accelerated on Friday after stop-loss bids were triggered.
In early New York trading, the euro traded at $1.3339, having hit a session low around $1.3251, and down 0.3 percent from around $1.3377 in late U.S. trade on Friday.
Bids below $1.33 supported the pair, while offers were seen above $1.3350, keeping the upside limited, traders said.
Some traders said the euro gained some ground as European equities rose after earlier euro selling by macro funds.
Still many analysts see further downside for the euro.
"We expect the euro to trade below $1.30 for most of the first quarter," said Roberto Mialich, currency strategist at Unicredit in Milan, adding peripheral euro zone debt issuances in the early part of the year could be a catalyst for the shared currency to fall.
The dollar edged up 0.5 percent against the yen to 81.59 yen, having touched an eight-week low of 80.93 yen on trading platform EBS earlier on Monday.
"Without an upside surprise in the (U.S.) job data this week, dollar/yen is likely to come under renewed pressure," analysts at BNP Paribas said in a note.
U.S. nonfarm payrolls due out on Friday are seen rising 126,000 in December, a Reuters poll showed. U.S. Federal Reserve Chairman Ben Bernanke's congressional testimony scheduled for Friday will also be closely watched.
The dollar rose 0.3 percent against the Swiss franc to 0.9361 francs, after dropping to an all-time low of 0.9301 on Friday.
The euro was flat against the Swiss franc at 1.2488 francs, still some distance away from its record low at 1.2398 francs hit last week. (Additional reporting by Tamawa Desai in London; Editing by W Simon )