* Dollar index touches fresh 11-year high in Asia
* Strong payrolls raise bets of earlier Fed hike
* Eurogroup meeting to discuss Greece up next
By Anirban Nag
LONDON, March 9 (Reuters) – The dollar paused after hitting a 11-1/2 year high against a basket of currencies on Monday, with widening rate differentials set to underpin the greenback as investors bet the Federal Reserve may lift rates soon.
Surprisingly strong U.S. jobs data on Friday increased the chance of a mid-year Fed interest rater hike, sending Treasury yields higher and widening the gap over core government bonds from Japan and the euro zone.
That in turn re-energised the greenback’s rally last week, with the dollar index posting its biggest weekly gains since late 2011. It ran into some profit-taking in Europe and the index was last down 0.2 percent at 97.425.
“The dollar has travelled a long way in a pretty short time. U.S. yields have risen but they need another catalyst to move further higher. So until then, we could see some consolidation,” said Jeremy Stretch, head of currency strategy at CIBC World Markets, London.
The Fed’s readiness to raise rates gave a clear advantage to holding dollars as the European Central Bank, the Bank of Japan and many other central banks are looking to ease their policies further.
“The Fed is likely to drop the word ‘patient’ from its next policy statement to pave the way for a rate hike, though it may be too early to conclude that a rate hike in June is a done deal,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
The euro rose 0.4 percent to $ 1.0885, having slid to $ 1.0822 early in Asia and surpassing Friday’s trough of $ 1.0839 to reach lows not seen since September 2003. The European Central Bank starts its 1 trillion euro programme on Monday and this is expected to keep the single currency under pressure.
Against the yen, the dollar fetched 120.82, not far from Friday’s three-month high of 121.29. It was back near a 7-1/2 year peak of 121.86 set in December.
In Europe, the focus will be on the outcome of a meeting of euro zone finance ministers, who are due to discuss a recent letter of pledged reforms sent by Greece.
Athens and its euro zone partners struck a deal last month to extend its bailout programme by four months, but the cash-strapped country has until April to successfully conclude a bailout review before it receives any further aid.
ECB executive board member Benoit Coeure told a Cypriot newspaper on Sunday the ECB was looking forward to working with Greece to complete a review of its bailout, but time is running out.
“Greece and the ECB’s asset buying programme give it plenty of reason for it to stay under pressure,” added CIBC’s Stretch.
(Additional reporting by Hideyuki Sano; Editing by Tom Heneghan)
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