* European shares choppy, Wall Street set for subdued start
* Dollar hits four week high v yen, pound pinned at 31-year low
* Focus on Friday U.S. jobs data after ISM survey shows service sector rebounds from 6-year low
* Oil prices stay near four-month highs
* Futures price in over 60 pct chance of Fed hike by Dec
By Marc Jones
LONDON, Oct 6 (Reuters) - Growing expectations that U.S. interest rates will rise before the end of the year lifted the dollar and bank shares on Thursday but took the shine off gold, one of the year's best- performing assets so far.
Investors were already looking to U.S. jobs data on Friday as the dollar hit a four-week high against the yen and pinned Britain's sterling firmly to a three-decade low.
European shares endured a choppy session. Beaten-down banking stocks provided the biggest boost, while reports of a takeover sent German lightbulb maker Osram to a record high.
German industrial orders data also came in surprisingly strong but the region's big markets - Britain's FTSE, Germany's DAX and France's CAC - still dipped in and out of the red. Wall Street was also set for a subdued start.
"By and large the dollar is continuing to trade well," said Societe Generale strategist Alvin Tan. "Expectations about the Fed raising rates are edging up and that has been helped by the good run of U.S. data ... The big one though is tomorrow with the non-farm payrolls report."
Strong U.S. jobs numbers could cement expectations of a Federal Reserve rate increase, most likely in December. The median forecast of economists polled by Reuters is for payrolls to rise by 175,000.
The Fed-sensitive two-year U.S. government bond yield reached a four-month high of 0.857 percent on Wednesday as rate futures markets started pricing in a more than 60 percent chance rates would rise before the end of the year.
Europe's benchmark bond yield edged back below zero, however, as minutes of the European Central Bank's last meeting soothed investors' nerves about it eventually winding down its stimulus programme.
Euro zone yields, including the bloc's top-rated German debt, which is usually seen as a safe haven in times of stress, have shot higher this week after reports about possible ECB moves.
The minutes said underlying price growth showed no sign of recovery and "it was therefore of crucial importance to preserve the very substantial degree of monetary support currently embedded" in its forecasts. bit.ly/2dUH0iQ
A growing number of Fed officials have expressed the need for higher rates in recent weeks and U.S. traders were getting ready for a pre-payrolls appetiser in the form of weekly jobless claims figures due at 1230 GMT (8:30 a.m. ET)
The threat of tighter monetary policy in the U.S. and possibly Europe in future as well hit precious metals hard.
Gold slumped to $1,264.7 per ounce, just off a 3 1/2-month low of $1,262.2 it had hit overnight. Silver also sagged to $17.69 after having tumbled to $17.565 per ounce, its lowest since late June.
"A surprise on the upside (of U.S. jobs numbers) will make market watchers expect an even higher probability of a rate hike and that could bring gold prices down," said OCBC Bank analyst Barnabas Gan.
"I would advise to buy on dips for gold simply because the fall in gold prices is very much driven by very short-term factors," Gan said, who has a year-end forecast of $1,350 an ounce.
In the currency market, the dollar rose to a one-month high of 103.67 yen and last stood at 103.63 yen.
The British pound was at a new three-decade low of $1.2666 on worries about Britain's exit from the European Union.
The euro slipped too to $1.1185, as the dollar's jostling and lingering concerns over the health of Deutsche Bank and other parts of the banking system offset the lacklustre speculation about ECB tapering.
Oil prices began to perk up ahead of U.S. trading having slipped from three-month highs after Saudi Arabia trimmed the price of its flagship crude in Asia.
International benchmark Brent futures was last at $51.93 a barrel, after rising as high as $52.09 on Wednesday, the highest since early June.
U.S. crude futures traded at $49.85, flat on the day but up 2.7 percent on the week.
"Markets are hoping that they will not just agree on a cut next month but will also come up with a series of cuts in the future," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
"But unless we have more evidences of cooperation, it is hard to see oil prices rising much further." (Additional reporting by Hideyuki Sano in Tokyo and John Geddie in London, editing by Larry King)