FILE PHOTO: U.S. one hundred dollar notes are seen in this picture illustration taken in Seoul, February 7, 2011. REUTERS/Lee Jae-Won/File Photo

By Ankur Banerjee

SINGAPORE (Reuters) -The U.S. dollar steadied on Thursday in a volatile week as investors contended with bond market jitters while weighing data that showed a weakening labour market, which reinforced expectations the Federal Reserve will cut rates this month.

With the Fed focused on the labour market, Friday's crucial jobs report will set the tone for the near-term rate outlook after data on Wednesday showed job openings fell to a 10-month low in July, although layoffs remained relatively low.

Traders are pricing in about a 97% chance of the Fed cutting interest rates later this month, up from 89% a week earlier, CME FedWatch showed. They are also pricing in 139 basis points of easing by the end of next year.

The dollar was relatively steady in Asian hours after easing in the previous session as investors were hesitant in placing major bets ahead of the U.S. payrolls report.

The euro held onto its overnight gains and last bought $1.165275. After a bruising week, sterling was at $1.343, slightly lower on the day, not far from the four-week lows it hit on Wednesday.

The dollar index, which measures the U.S. currency against six other units, was flat at 98.227 after a small drop on Wednesday. The Japanese yen was muted and last bought 148.16 per dollar.

Several Federal Reserve officials said labour market worries continue to underpin their view that rate cuts still lie ahead for the central bank, boosting expectations of an imminent rate cut.

James Knightley, ING's chief international economist, said the Fed is very likely to cut rates meaningfully in the months ahead with little inflation pressure coming from the jobs market.

"We expect them to cut 25 bp at the September, October and December FOMC meetings." The Fed is due to meet on September 16-17.

BOND WORRIES

Much of the focus this week has been on the bond market where yields on long-end notes across the globe have risen as investors become increasingly anxious about the fiscal health of major economies from Japan to Britain and the United States.

"The sell-off in global bond markets is hurting investor sentiment and weighing on the GBP and JPY where there are particular concerns about fiscal sustainability," said David Forrester, senior strategist at Credit Agricole in Singapore.

But a closely watched auction of 30-year Japanese government bonds passed smoothly on Thursday, calming investors' nerves, while the dovish comments from policymakers spurred a rally in Treasuries, pushing yields lower.

U.S. 30-year bond yields were at 4.901% after hitting 5%, the highest in about 1-1/2 months on Wednesday. The yield on the 30-year JGB slid 4 bps to a session low of 3.24% following the auction results.

Uday Patnaik, head of Asia fixed income and global emerging market debt in the asset management division of L&G, said the rise in yields reflects poor fiscal conditions in some of the largest advanced economies, where the debt-to-GDP ratio is heading above 100%.

"The problem here is not one of these countries are running a primary surplus, which means revenues cannot even cover non-interest spending," he said.

"To fix this will necessitate significant cuts in spending or additional revenues, at a time when social and political pressures are running high."

In other currencies, the Australian dollar was 0.23% lower at $0.6528, while the New Zealand dollar last bought $0.5869.

(Reporting by Ankur Banerjee in Singapore; Editing by Sonali Paul and Stephen Coates)