* Dollar slips a little ahead of US jobs report
* Trading ranges very tight ahead of key data
* Dollar reaction key to risk sentiment in coming weeks
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By Jamie McGeever
LONDON, Sept 4 (Reuters) - The dollar weakened slightly on a trade-weighted basis on Friday ahead of U.S. employment figures that could set the tone for the greenback -- and other financial markets -- for the rest of the month.
Trading ranges across major currency pairs in early European trade were tight, however, with investors reluctant to put on big positions ahead of the August non-farm payrolls data.
The euro recovered some of its losses the previous day triggered by comments from European Central Bank President Jean-Claude Trichet which suggested the outlook for growth, inflation and credit conditions will keep policy and therefore market interest rates low for some time.
And the yen inched down from its seven-week high struck against the dollar earlier this week, with traders keeping an eye on dollar/yen options expiries worth over $1 billion later on Friday, including strikes worth $800 million at 91.60 yen.
But the focus is firmly on the dollar and how it reacts to the U.S. jobs figures. For example, will a weak report relative to expectations trigger dollar selling, or will that burnish its safe-haven status in a climate of rising risk-aversion?
"In the current context of slightly positive sentiment on the dollar, it (relatively strong data) may be positive for the dollar," said Carole Laulhere, currency strategist at Societe Generale in Paris.
Any dollar strength on a positive data surprise would mark a further step on the path towards the "regime switch" in the relationship between the dollar, economic data and broader market "risk" sentiment, strategists at Citigroup reckon.
"The episode will be critical in judging the extent to which the expected regime switch, from risk cycle-to business cycle trading, is proceeding. We expect the dollar to strengthen once market focus shifts to the likely outperformance of the U.S. economy," they said in a note on Friday.
At 0805 GMT, the dollar index was down 0.1 percent at 78.38 .DXY.
The euro was up 0.1 percent at $1.4270 EUR=, with traders reporting good selling ahead of pre-placed automatic buy orders at $1.4310.
The dollar was up 0.1 percent against the yen at 92.70 yen JPY=, still within one yen of Thursday's seven-week low just under 92.00 yen.
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The latest forecast is for a drop of 225,000 in payrolls with the jobless rate inching up to 9.5 pct [ECI/US]. But estimates range from a drop of 100,000 to as much as 365,000.
Other areas of focus for currency markets on Friday included the meeting in London this weekend of finance ministers from the Group of 20 rich and developing nations.
G20 policymakers will promise to keep economic support packages in place until recovery is certain and seek to reassure financial markets they have credible plans to withdraw the stimulus when appropriate. [ID:nLQ516726]
This was a theme stressed by ECB President Jean-Claude Trichet on Thursday after the central bank kept interest rates at a record low 1.0 percent.
He also said the rate at the ECB's tender of unlimited one-year funds later this month being kept at 1 percent [ID:nL3374378], which pushed down short-term rates and yields, and steepned the yield curve.
He expanded on these themes in a speech in Frankfurt on Friday, saying that the ECB could raise rates before it fully exits its non-standard liquidity provisions, although now was not the time to start such an exit strategy [ID:nL4382390].
Currency traders were also watching the price of gold, which almost reached $1,000 an ounce XAU= on Thursday. Higher gold often signals dollar weakness.
"This rise in gold is an interesting one and is technically breaking higher. Its correlation with the dollar may keep the cap on the dollar for a while," said Maurice Pomery, managing director of Strategic Alpha in London.
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