By William L. Watts & Lisa Twaronite, MarketWatch LONDON (MarketWatch) - The U.S. dollar was up slightly versus major rivals other than the Japanese yen Monday, extending Friday's sharp rally in the wake of a much smaller-than-expected drop in November non-farm payrolls and unexpected drop in the unemployment rate. "It may be too early to call a turning point for the U.S. dollar and bond yields/swaps after Friday's stronger U.S. employment report, but the rally in dollar crosses and spike in yields are a taster of what 2010 may look like if the U.S. economy starts showing more tangible evidence that economic conditions are normalizing," said Kenneth Broux, market economist at Lloyds TSB. The November labor data led traders to increase bets that the U.S. Federal Reserve will boost rates earlier than previously forecast. See report on Friday's jobs data. Strategists said markets would pay close heed to a speech by Federal Reserve Chairman Ben Bernanke at 12:45 p.m. Eastern Time in Washington. The dollar index (DXY 76.01, +0.32, +0.43%) , which measures the buck's performance against a trade-weighted basket of six major currencies, was at 75.976, up from 75.819 in late North American trading on Friday. On Friday, the dollar index leaped the most since June. "While high unemployment and low inflation pressures suggest that it still seems unlikely that the Fed will be hiking rates quickly, there is less reason to expect that the Fed will avoid raising rates until 2011," said Jane Foley, director of research at Forex.com "What will be key for the U.S. dollar is if the fear of the first Fed rate hike has become sufficiently tangible for the dollar to cast off its role as funding currency and break its negative correlation with risk," she said. "Bernanke's remarks ... could be key." With official interest rates near zero and the Fed committed to keeping rates low for an extended period, the greenback has become an increasingly popular funding currency in carry trade, analysts say. Carry trades involve borrowing funds in a low-yielding currency and then purchasing higher-yielding assets. Strategists say that relationship is behind the dollar's inverse correlation to risk appetite, leading the currency to fall when equities and other assets perceived to carry risk rise. The euro traded at $1.4795, down from $1.4847 late Friday, while the British pound slipped 0.9% to $1.6333. The dollar jumped 1.1% versus the New Zealand dollar to trade at NZ$1.4094. The Australian dollar fell 0.4% to buy 90.78 U.S. cents. The dollar slipped versus the Japanese currency, however, to fetch 90 yen, down from 90.51 yen late Friday. Despite the yen's rise Monday, the Japanese unit is still well below recent highs, and this gave Japanese stocks a lift. A weaker yen helps support repatriated overseas profits of exporters, so the yen's recent strength has vexed Japanese policy makers, who are worried about sustaining the country's fragile recovery. "The rally in [the] U.S. dollar could not have come too soon for Japanese policy makers and the Nikkei," wrote Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney. "From 84.83, the shock USD/JPY low [of] Oct. 27 to Friday's 90.50, the Nikkei has gone from testing 9,050, to back above 10,100."

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