* Dollar hits 5-week high vs euro, currency basket
* Dollar extends rally after strong U.S. payrolls
* Traders bet on speedier normalisation in Fed policy
(Recasts, updates prices, adds quotes)
NEW YORK, Dec 7 (Reuters) - The dollar hit a five-week high on Monday, extending its rally from Friday, when strong U.S. jobs data fueled speculation the Federal Reserve may consider winding down its stimulus measures.
Against the euro, the dollar rallied to its highest in more than a month after data showing a much smaller-than-expected loss of U.S. jobs strengthened views that the world's biggest economy was recovering from recession.
"Friday's unemployment data in the U.S. definitely causedU.S. dollar shorts to rethink their positions," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto in a note to clients. "The market's short-term reaction was based not solely on the employment data directly, but also its impact on the interest rate outlook."
The U.S. currency extended its rally from Friday. up 1.7 percent, its best one-day performance in a year, after the government said the United States shed 11,000 jobs in November, confounding forecasts for 130,000 job losses.
The euro EUR=> was down 0.2 percent on the day at $1.4821, midway through the New York session. In earlier trade it fell to $1.4757, according to Reuters data, its weakest since Nov. 4.
Market participants said euro losses were limited as traders suspected stop-loss orders around $1.4750. Some analysts said the slide in the single European currency was providing a good opportunity to buy on dips.
The euro showed little reaction to news of an unexpected fall in German manufacturing orders during October due to weaker export demand, with analysts saying this was partially offset by an upward revision to September's data.
Euro investors also showed little reaction to comments from European Central Bank President Jean-Claude Trichet, who said the euro area economy is showing increasing signs of recovery.
Elsewhere the dollar was up 0.4 percent against the Swiss francwhile sterling slipped 0.2 percent to $1.6412.
Despite its broad gains, the dollar was down 1 percent at around 89.56 yen.
The U.S. currency remains well above a 14-year trough of 84.82 yen, marked in late November on trading platform EBS. The euro was down 1.1 percent at 132.78 yen.
The yen's strength was mostly technical, analysts said, after the dollar gained 2.5 percent against the yen on Friday.
"We are seeing some price consolidation after Friday's strong move" in the dollar, said Melvin Harris, market strategist at Easy Forex US Ltd in New York.
Many in the market say the dollar's strong performance was also due to massive unwinding of short dollar positions as the year nears end.
Some analysts see more room for such unwinding after speculators increased bets versus the dollar in the week ended Dec. 1 to the most since at least June 2008, CFTC data showed on Friday.
DOLLAR POSITIONS
Despite the dollar's latest rally, some analysts said one strong jobs report would do little to shift the view of the Fed, which meets next week, and expectations that rates will stay low for some time may limit any lasting upside in the U.S. currency.
John Hydeskov, senior currency analyst at Danske Markets in Copenhagen, said the Fed was unlikely to significantly change its pledge to keep rates low for an extended period, which may disappoint dollar bulls.
Traders will look for hints on the Fed's view of the economy and rates when Fed Chairman Ben Bernanke and New York Fed President William Dudley speak later Monday.
"From a fundamental perspective, the focus will now be on whether the strong (jobs) data lead to any shift in the Fed's policy outlook, starting with speeches by Bernanke and Dudley today," analysts at Barclays said in a research note. A Reuters poll showed on Friday that dealers' expectations for when the Fed will raise its benchmark interest rate ranged from the second quarter of 2010 to 2012. Most saw the central bank hiking rates by the end of the first quarter of 2011.
The dollar has taken a beating for much of the year on the view that rates in the U.S. will stay low while those elsewhere rise. This would increase the yield advantage of other currencies against the dollar.
(Reporting by Nick Olivari; additional reporting by Naomi Tajitsu in London; Editing by Andrew Hay)