By Saqib Iqbal Ahmed

NEW YORK (Reuters) -The dollar traded modestly weaker against most major peers on Friday, and was on pace for its worst weekly showing against the euro this year after mixed data kept an anticipated June interest rate cut from the Federal Reserve on the table.

Nonfarm payrolls increased by 275,000 jobs last month, the labor department's Bureau of Labor Statistics said in its closely watched employment report on Friday. Data for January was revised down to show 229,000 jobs created instead of 353,000 as previously reported.

The unemployment rate rose to 3.9% in February after holding at 3.7% for three straight months, the data showed.

"The market had been getting a little worried, I think, that the Fed was stepping back from being in a position to cut rates soon, particularly given the recent inflation reports," said Stuart Cole, chief economist at Equiti Capital.

"Today's report should provide some optimism that, even if the scale of loosening will not be as strong as considered at the turn of the year, things are still moving in the right direction to allow the Fed to cut this year," he said.

"In the short term at least, I think the dollar will be trading on a softer footing," Cole added.

The euro was 0.06% lower against the dollar at $1.09425. The common currency hit an eight-week high earlier in the session and was up nearly 1% for the week, its best weekly performance against the buck since the week ended Dec. 22.

The ECB kept rates at record highs of 4.00% on Thursday while cautiously laying the ground to lower them later this year, saying it had made good progress in bringing down inflation.

The euro got a lift this week as the dollar came under pressure after Federal Reserve Chair Jerome Powell sounded more confident about cutting interest rates in coming months.

Speaking on Thursday, Powell said the Fed was "not far" from having the confidence it needed to cut rates. Currencies typically weaken if central banks lower interest rates.

"(Friday's data) really kind of solidifies what Chair Powell was saying this week, about the confidence he had in the potential to begin the rate cutting cycle this year," said Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina.

Meanwhile, the yen rose to a five-week high against the dollar, aided by reports the Bank of Japan is warming to the idea of raising interest rates and considering a new quantitative monetary policy framework.

Jiji news agency reported the BoJ is considering a framework that will show the outlook for upcoming government bond buying amounts.