* U.S. economy adds 98,000 jobs in March, fewer than expected
* Unemployment rate declines to 4.5 percent
* Investors still focused on Syria (Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 7 (Reuters) - The dollar rose on Friday as a drop in the U.S. unemployment rate for March despite a much lower-than-expected number of jobs created in the month kept the outlook for interest rates intact this year.
Investors still expect two more rate increases in 2017, analysts said, although the probability of a June hike has declined to 61 percent from more than 70 percent late on Thursday.
U.S. non-farm payrolls increased by 98,000 jobs last month, the fewest since last May, as the retail sector shed employment for a second straight month, the Labor Department said. That was far short of the increase of 180,000 jobs expected by a Reuters poll of economists.
The unemployment rate, meanwhile, declined to 4.5 percent from 4.7 percent in February.
"As long as we see the unemployment rate decline, we will see more rate hikes," said Cathy Barrera, chief economic adviser at ZipRecuiter in New York. "Since we just had one (hike), the Fed is just going to keep an eye on things and see what happens over the next few months."
The greenback initially sold off on the softer-than-forecast headline number, but since recovered. Traders said the market remained focused on geopolitical events after the United States launched cruise missiles at an airbase in Syria, an ally of Russia. As a result, the dollar has been supported by some safe-haven buying.
The dollar was last up 0.2 percent against a basket of currencies. The safe-haven yen, which had gained on the back of the strike on Syria, was flat against the dollar, which was last at 110.85 yen.
The euro fell versus the U.S. currency, down 0.2 percent at $1.0617. (Reporting by Gertrude Chavez-Dreyfuss; Editing by Meredith Mazzilli)