* Dollar looks to potentially upbeat U.S. jobs report to resume rise
* Dollar nudged off 16-mth high by bullish pound
* Slight ebb in trade tensions supports Aussie, yuan
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Shinichi Saoshiro
TOKYO, Nov 2 (Reuters) - The dollar sagged against its peers on Friday, pulling away from a 16-month peak hit earlier this week as returning confidence in financial markets reduced the appeal for safe haven assets and as investors awaited the closely-watched U.S. jobs report.
The dollar index against a basket of six major currencies was little changed at 96.335 after dropping nearly 0.9 percent overnight, weighed by a rallying sterling and as a slight ebb in trade concerns boosted peers such as the Australian dollar and the Chinese yuan.
The pound stood tall on the prospect of the Bank of England being more bold with tightening monetary policy.
World equity markets began November with a broad rally on Thursday after a brutal October, boosted by strong corporate earnings and signs that a trade war between economic giants, China and the United States, could be contained. That reduced some of the support for currencies like the dollar, which benefit in times of heightened risk aversion.
Market participants now await the U.S. jobs report due at 1230 GMT for possible clues on monetary policy direction in the United States.
“Long-term U.S. yields have established a firm foothold above 3 percent, providing a strong backdrop for the dollar,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. “And if the jobs report proves to be robust, we could see the dollar bounce back from recent losses and resume its rise.”
U.S. payroll figures are expected to have risen to 190,000 in October from 134,000 in the previous month, with average hourly earnings seen increasing 0.2 percent in October after a 0.3 percent gain the previous month.
The dollar index had risen to 97.00 on Wednesday, its highest since February 2017, lifted by upbeat U.S. data and a corresponding rise in Treasury yields.
The dollar was higher against its major peers earlier this week, with the euro dogged by a lacklustre European economic outlook and a cautious-sounding Bank of Japan lending little support to the yen.
The greenback, however, pulled back from the 16-month peak as the pound surged on Thursday following reports that London is close to sealing a financial services deal with Brussels, and as the BoE kept interest rates steady but hinted future interest rate rises would be slightly faster if Brexit goes smoothly.
Sterling was flat at $1.3000 after surging 1.8 percent on Thursday, its biggest one-day gain since April 2017.
The euro was little changed at $1.1402 after gaining 0.9 percent overnight on the dollar’s broad retreat. The single currency had stooped to a 2-1/2-month trough of $1.1302 on Wednesday.
The dollar was up 0.1 percent at 112.795 yen after declining 0.25 percent on Thursday. The greenback has gained 0.8 percent versus the yen this week, during which it scaled a three-week high of 113.385.
The Australian dollar added 0.1 percent to $0.7213 after jumping 1.8 percent the previous day.
The Aussie, which is sensitive to Chinese economic development, surged as U.S. President Donald Trump and Chinese President Xi Jinping both expressed optimism on Thursday about resolving their bitter trade disputes.
Amid the slight easing in Sino-U.S. trade tensions, China’s yuan advanced 0.8 percent in offshore trade and last stood little changed at 6.9195 per dollar.
Worries about Chinese economic growth and the ongoing trade row had pushed the offshore yuan to a 22-month trough of 6.9800 midweek.
Editing by Sam Holmes