The dollar slumped on Friday after signs of a less resilient U.S. labor market reduced the outlook for how long the Federal Reserves will keep interest rates higher, while the yen surged on concerns the 10-year Treasury's yield rose above 4%.

The U.S. economy added the fewest jobs in 2-1/2 years in June, the Labor Department said in an employment report that also showed 110,000 fewer jobs were created in April and May than earlier reported.

A jump in the number of people working part-time for economic reasons also suggested a weaker labor market, but the pace of job growth remains strong and with inflation still double the Fed's target rate, a rate hike this month is likely.

The yen rose 1.37% to 142.13 , a two-week high against the U.S. currency, as the rise in 10-year Treasury's yield above 4% heightened market concerns that Japan might intervene in currency markets, said Joe Manimbo, senior market analyst.

The dollar index fell 0.776% at 102.280, while the euro was up 0.72% to $1.0964.

The dollar and other major currencies, with the exception of Japan's yen, are in a tight trading range as most central banks are engaged in tightening monetary policy to fight inflation.

Strong U.S. economic data on Thursday pushed short-dated Treasury yields to their highest since 2007, reflecting the view that the Fed is likely to raise rates by 25 basis points when it concludes a two-day policy meeting on July 26.

After the jobs data, futures pointed to an 88.8% probability that the Fed hikes in three weeks.

Earlier, the Japanese labor ministry reported regular wages posted their largest annual increase in May since early 1995, reinforcing the view that the Bank of Japan (BOJ) will have to modify its ultra-loose monetary policy sooner rather than later.

The Australian dollar rose 0.8% to $0.6681, but it is still battered by weak Chinese economic data and broad risk aversion. The offshore yuan fell 0.4% at 7.2257.

Source : Reuters