FOREX-Draghi's warnings deflate euro but dollar's rise seen limited

* Euro loses ground after ECB spurs rate cut expectations

* Dollar/yen hovers above 3-week low, down 0.4 pct for the week

* Canadian dollar undermined by shock drop in employment data (Updates with late New York (Frankfurt: HX6.F - news) prices)

By Daniel Bases

NEW YORK, May 9 (Reuters) - The euro extended its sharp decline from a 2-1/2-year high against the dollar on Friday, a day after European Central Bank chief Mario Draghi did his best to sap the currency's strength by threatening more monetary stimulus.

The U.S. dollar, meanwhile, traded at a one-week high against a basket of its major trading partners' currencies, pulling it off a 20-month low reached on Thursday.

Following the ECB's policy meeting on Thursday, Draghi warned that the euro's strength was "a serious concern" and that the ECB was "comfortable" with taking more action to support economic growth and raise inflation at its June meeting.

"The euro continued to fall overnight from Draghi's comments, but that move is starting to run out of legs," said John Doyle, currency strategist at Tempus Inc in Washington, D.C.

"He has a number of times attempted to talk down the euro, and yet they haven't done much. The testing of $1.40 on the euro was right, but until the ECB actually acts, I don't see a sustained rally in the dollar. The market has been calling Draghi's bluff," Doyle said.

The euro lost 0.67 percent to trade at $1.3747, more than 2 cents below highs reached on Thursday and its weakest level in a month. For the week, the euro is off 0.89 percent.

"For me it is not a game changer. As long as quantitative easing continues in the U.S., we expect the dollar to remain under pressure," said Lutz Karpowitz, a currency strategist with Commerzbank (Xetra: CBK100 - news) in Frankfurt. "I would expect the euro to trade higher against the dollar next week."

JOBS DATA CLOBBERS CANADIAN DOLLAR

Weaker-than-expected April employment data in Canada sent a wave of selling through the loonie. A loss of 28,900 jobs defied forecasts for a gain of 12,000, suggesting the labor market has stalled.

After hitting a four-month high on Thursday, the loonie has dropped 0.62 percent to C$1.0900, or 91.74 U.S. cents.

In other trading, the U.S. dollar made a steady advance. Against the yen, it edged up 0.12 percent, to 101.77 yen but was still not far from Wednesday's three-week low. The greenback hit a one-month high versus the Swiss franc, rising 0.82 percent to 0.8873 franc.

Sterling shed gains, falling 0.54 percent against the greenback to $1.6841. Earlier in the week it nearly touched $1.70, a level not seen since August 2009.

Trading ranges narrowed in the last hours of the week ahead of the May 11 separatist referendum in Ukraine.

Pro-Russian separatists voted unanimously on Thursday in favor of holding a referendum on independence, ignoring calls by Russian President Vladimir Putin to postpone the vote to open the way for talks with Kiev authorities. (Additional reporting by Leah Shnurr in Toronto and Patrick Graham (AMEX: GHM - news) in London; Editing by Dan Grebler and Leslie Adler)