FOREX-Dollar set for worst week in a month, euro rides high

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Iain Withers

LONDON, Dec 4 (Reuters) - The dollar was headed for its worst week in a month on Friday after plumbing a 2-1/2 year low, as investors bet the greenback has further to fall and that the worst of the COVID-19 pandemic could be over within months.

A flurry of positive vaccine news has helped drive a rally in riskier currencies, while actions taken by the Federal Reserve have weakened the dollar.

The dollar index hit a low of 90.504 on Thursday and is on track for a more than 1% fall over the week. It was last broadly flat on the day at 90.628.

"It has been another bad week for the US dollar," analysts at MUFG said in a note. "It will encourage speculators to rebuild short US dollar positions which have been pared in recent months."

Investors have turned heavily short dollars, figuring rates will stay low for a long time in the United States forcing yield-seekers to head elsewhere for better returns.

Investors will get a further indicator of how the U.S. economy is holding up at 1330 GMT, with monthly payrolls data expected to show employment growth, but at a slower pace.

The euro has been one of the biggest winners from recent dollar weakness, breaking decisively above $1.20 this week and is on track for a more than 2% weekly gain.

The single currency was up 0.2% on the day, at $1.2168.

"The euro is holding above the $1.21 level for the first time since spring 2018, despite the fact that there is only a week to go before the European Central Bank is expected to add more policy stimulus," said Rabobank strategist Jane Foley.

The yen was broadly steady against the dollar on Friday, while sterling edged down against both the dollar and euro with Brexit trade talks between the UK and European Union at a critical stage. <EURGBP+D3> (Reporting by Iain Withers, Additional reporting by Tom Westbrook in Sydney; Editing by Kim Coghill)