Can and US both lose jobs.

Jan. 8 (Bloomberg) -- The dollar fell from a four-month high against the yen and dropped versus the euro as U.S. employers unexpectedly cut jobs last month, boosting speculation that the Federal Reserve will extend stimulus measures.

“The headline doesn’t sit well with the dollar,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “People had been bracing for a flat to positive number. It puts expectations for a Fed rate hike on ice.”

The dollar declined 0.4 percent to $1.4365 per euro at 8:45 a.m. in New York, from $1.4308 yesterday. The dollar dropped 0.8 percent to 92.67 yen, from 93.37. The euro traded at 133.08 yen, compared with 133.58.

U.S. employers eliminated 85,000 jobs in December after a revised addition of 4,000 in the previous month, the Labor Department said in Washington today. The median estimate of 76 economists in a Bloomberg News survey was for no change in nonfarm payrolls. The unemployment rate held at 10 percent.

The traded-weighted Dollar Index, which the ICE futures exchange uses to track the greenback against currencies including the euro, yen, pound and Swiss franc, rose 1.7 percent on Dec. 4, when the Labor Department reported an unexpected drop in unemployment.

The index had fallen 17 percent from the 2009 peak reached in March as evidence of a global economic rebound spurred investors to buy higher-yielding assets funded with dollars. The index rose 4 percent in December on speculation the Fed was moving closer to withdrawing stimulus measures.

Fed Stimulus

At its Dec. 15-16 meeting, Fed officials debated increasing and extending its stimulus program should the economy weaken, according to minutes released Jan. 6. A few favored such a move while one policy maker discussed a reduction.

The target rate for overnight lending between banks was held at a range of zero to 0.25 percent. The Fed said in its statement at the end of its December meeting that deterioration in the labor market “is abating.”

The yen rose earlier today against the dollar after Japan’s Prime Minister Yukio Hatoyama said rapid foreign-exchange moves were “not good” a day after the newly appointed Finance Minister Naoto Kan said yesterday he would welcome a weaker yen.