* Dollar inches higher, hits four-week high vs yen
* Broader dollar index gains 0.2 pct
* Sterling back on defensive after Wednesday’s bounce
* Market pausing before U.S. non-farm payrolls on Friday
By Patrick Graham
LONDON, Oct 6 (Reuters) - The dollar ground higher on Thursday, extending this week’s four-week highs against the yen before a U.S. jobs report many expect to help seal the case for a rise in U.S. interest rates in December.
Rises in U.S. Treasury yields over the past 10 days have been the main driver of a halt in the yen’s steady progress this year, pushing the Japanese currency back from 100 yen per dollar to 103.71 on Thursday.
The yen was also within sight of Wednesday’s five-week lows against the euro, but in general moves across the major currencies were subdued.
“Obviously, the big focus is the U.S. jobs data tomorrow, so the market is likely to be in wait-and-see mode today,” said Alexandre Dolci, a strategist with Spanish bank BBVA in London.
“If we do have this double whammy of positive headlines from the U.S. data tomorrow - a strong NFP number and a further pick- up in average earnings - then we may see the dollar strengthen into the end of the week.”
The dollar index, which measures its broader strength against a basket of currencies, rose 0.2 percent to 96.284. Against the euro it gained 0.1 percent to $1.1195.
Analysts from Morgan Stanley argued that the fall in the yen was being driven by a drop in hedging activity as U.S. yields rose.
“Over the course of the past few weeks, US front-end rates have moved higher as the market prices in a 65 percent probability of the Fed hiking rates by December,” they said in a morning note.
“This repricing has primarily driven low-yielding currencies. The yen has come under significant selling pressure, supported further by foreigners net selling 1.89 trillion yen of Japanese money market instruments.”
Britain’s pound has taken a hammering in the past fortnight on signs that the government is ready to prioritise controls on immigration over membership of the European Union’s single market.
Prime Minister Theresa May gave the currency a small bump on Wednesday by warning of the negative side effects of ultra-low interest rates, although her spokesman later played down the idea that signalled changes ahead in monetary policy.
The pound retreated 0.3 percent to $1.2711, just a third of a cent off Wednesday’s 31-year lows, in early trade in London. (Editing by Larry King)