By Hideyuki Sano

TOKYO (Reuters) - The dollar strengthened against the yen on Monday, extending its gains after strong U.S. job figures bolstered expectations of faster economic growth and raised the probability of a Federal Reserve interest rate increase this year.

Nonfarm payrolls rose by 255,000 jobs in July, way above economists' median forecast of an increase of 180,000 while payroll growth in June was also revised up to 292,000, with hiring across sectors in the economy.

Against the yen <JPY=>, the dollar firmed to 102.08 yen, gaining 0.3 percent in early Monday trade and extending its slow recovery from Tuesday's three-week low of 100.68.

"The payrolls data puts markets on risk-on mode, making it difficult to buy the yen for now," said Yukio Ishizuki, currency strategist at Daiwa Securities.

The euro <EUR=> dropped to as low as $1.1046 on Friday, its lowest level in over a week. In early Asian trade it stood at $1.1091, flat from late U.S. levels last week.

The British pound <GBP=D4> dropped to $1.3021, its lowest since early July, and last traded at $1.3078.

The dollar's broad gains put its index against a basket of six major currencies <.DXY> <=USD> as high as 96.522 on Friday, rising 1.6 percent from its five-week low of 95.003 touched on Tuesday.

Yet it is still less than halfway in its recovery from its fall from four-month high hit late last month of 97.569 because many investors think the Fed still has many hurdles to boost rates when the world economy looks fragile.

The index last stood at 96.267, just below the 50 percent retracement of that four-month decline at 96.29.

Although the U.S. payrolls data slightly increased bets on U.S. rate hikes, investors think the Fed will have to play it safe given uncertainty from Brexit and slowdown in China.

Fed funds rate futures are pricing in less than a 20 percent chance that the Fed will raise rates in its next policy meeting in September and less than a 50 percent chance even by the end of year.

"Markets think it will be difficult for the Fed to raise interest rates when many other countries in the world are looking to ease their monetary policies further," said Daiwa's Ishizuki.

The Bank of England, the Reserve Bank of Australia and the Bank of Japan took easing steps during the past week or so.

Elsewhere, the Australian dollar held relatively firmer, staying near its peaks in recent months despite the Australian central bank's rate cut last week.

The Aussie stood little changed at $0.7616 <AUD=D4>, not far from its three-week high of $0.7665 hit just before Friday's payrolls data.

A rise beyond its 10-week peak of $0.7676 touched on July 15 would push it to its highest level since early May.

Despite the latest rate cut by the Reserve Bank of Australia, the currency still offers among the highest yields in the developed world, attracting investors seeking to escape negative interest rates in Europe and Japan.

The currency showed a muted response to Chinese trade figures. Exports fell 4.4 percent, compared to market forecast of 3.0 percent, while imports tumbled a bigger-than-expected 12.5 percent versus consensus of 7.0 percent drop. [ECONCN]

(Editing by Simon Cameron-Moore)