FOREX-Disappointing data reins in dollar bulls, eyes on payrolls

* Dollar backtracks after another batch of soft data

* U.S. Treasury yields slide, 10-year below 1.9 pct

* U.S. nonfarm payrolls next key test for dollar

By Ian Chua

SYDNEY, April 2 (Reuters) - The dollar nursed modest losses early on Thursday, having suffered a setback on fresh signs that the U.S. economy slowed significantly in the first quarter.

U.S. private employers added the smallest number of workers in more than a year in March and factory activity hit a near two-year low.

Treasury yields fell with the benchmark 10-year yield sliding back below 1.9 percent. That in turn undermined the greenback, which lost ground against a basket of major currencies.

It fell as far as 119.42 yen, from levels above 120.00, before steadying at 119.66 early in Asia. The euro climbed to $1.0800, from one-week lows of $1.0713. It last stood at $1.0771.

In contrast, figures out of Europe were much more encouraging with manufacturing activity across the euro zone accelerating and adding to signs the bloc's economy is recovering.

Dollar bulls are now pinning their hopes on non-farm payrolls due on Friday. Analysts polled by Reuters expect a rise of 245,000 in March, following a gain of 290,000 in February.

"As a reminder of the larger context, another print above 200k in March would represent the 13th in a row, a string of persistent strength that has not been seen since 1977," said Greg Moore, senior currency strategist at RBC (Other OTC: RBCI - news) .

Commodity currencies had a mixed night with the Canadian dollar benefiting from a jump in oil prices. But persistent weak iron ore prices kept its Australian counterpart under pressure, while a further fall in dairy prices weighed on the New Zealand dollar.

The loonie last stood at C$1.2615 per USD, continuing to recover from a low of C$1.2784 per USD after oil jumped as much as 5 percent on Wednesday.

The Aussie on the other hand languished at $0.7600, having come within a whisker of a six-year trough of $0.7561 as iron ore prices hit fresh lows. Iron ore is Australia's single biggest export earner.

Also weighed by rising supply, international milk prices fell in this month's first auction held by New Zealand's Fonterra Co-operative Group, the world's biggest dairy exporter.

That knocked the kiwi to as low as $0.7392, from Wednesday's session high of $0.7490. It has since recovered to $0.7448.

With many financial centres globally closed on Friday for the Easter holidays, trading is likely to be choppy as volumes dwindle. (Editing by Richard Pullin)