(Updates prices as of 0450 GMT, adds CNY, NZD)

By Kevin Buckland

TOKYO, Aug 9 (Reuters) - The dollar hovered close to a

one-week high against major rivals on Friday, after the biggest

drop in U.S. jobless claims in close to a year allayed fears of

a looming economic downturn.

China's yuan gained following a stronger-than-expected

inflation reading and a firmer official exchange-rate fixing.

The U.S. currency was steady against the Japanese yen

following a three-day rebound, supported by a spike in Treasury

yields as Thursday's firmer-than-expected employment data

spurred a paring back in bets for Federal Reserve interest rate

cuts this year.

The yen and fellow safe-haven currency Swiss franc hung near

one-week lows as Asian equities built on an overnight rally on

Wall Street, while riskier currencies such as the Australian

dollar and sterling stayed elevated.

Markets have endured a turbulent week, triggered in large

part by surprisingly soft U.S. payrolls figures a week ago that

sent global stocks tumbling, while demand for the safety of

assets such as the yen and the Swissie sent the currencies

surging to their highest levels since the start of the year on

Monday.

The dollar edged down 0.1% to 147.08 yen as of

0450 GMT, on course for an advance of around 0.4% this week,

despite Monday's precipitous 1.5% plunge.

It eased 0.1% to 0.8659 franc, on track for a 1%

weekly advance.

Initial claims for state unemployment benefits fell 17,000

to a seasonally adjusted 233,000 for the week ended Aug. 3, the

largest drop in about 11 months. Economists polled by Reuters

had forecast 240,000 claims for the latest week.

The odds of the Federal Reserve cutting interest rates by 50

basis points at its next policy meeting on Sept. 17-18 fell to

54%, from 69% a day earlier, with a 25 basis point cut now seen

as having a 46% probability, according to the CME Group's

FedWatch Tool.

"Despite the volatility in claims data, especially around

this time of year, the data helped allay fears of a more rapid

deterioration in the labour market," said Taylor Nugent, senior

markets economist at National Australia Bank.

The outsized Wall Street rally, which spurred the flight

from the yen and Swiss franc, was "an unusual reaction to a such

a volatile weekly print ... underscoring the market's

sensitivity to labour market indicators after Friday's soft

payrolls," he said.

UNWINDING OF SHORT YEN DONE?

The yen had shot higher this month, reaching the strongest

since Jan. 2 at 141.675 per dollar on Monday, as an unwinding of

short positions snowballed following a surprise rate hike by the

Bank of Japan amid weakness in U.S. economic indicators.

Commodity Futures Trading Commission figures later on Friday

will give a clearer indication of whether that unwinding has now

run its course.

The dollar index, which measures the currency versus

the yen, Swissie, euro, sterling and two other peers, was 0.1%

lower at 103.17 following three days of gains. It rose as high

as 103.54 at one point overnight for the first time since Aug.

2, but was last trading little changed from a week ago.

The euro was little changed at $1.0921, up 0.1%

from a week ago. On Monday, the shared currency soared as high

as $1.1009 for the first time since Jan. 2.

Sterling was steady at $1.2756, after a 0.49% rally

overnight that yanked it back from a more than one-month low.

However, it remained on course for a 0.4% slide this week, which

would be a fourth straight week of declines.

The Aussie was stable at $0.6595 after earlier

touching $0.6604 for the first time since July 24, given

additional support from the Reserve Bank of Australia governor's

hawkish comments a day earlier. It is up 1.24% this week.

The New Zealand dollar reached a three-week high of $0.6035

before last trading up 0.2% on the day at $0.6026. That's in

spite of a drop in inflation expectations that has traders now

pricing 80% odds of a quarter point rate cut when the central

bank sets policy on Wednesday.

The Chinese yuan strengthened about 0.3% to 7.1651 per

dollar in offshore trading. China's consumer price

index rose 0.5% in July from a year earlier, accelerating from a

0.2% pace in June and topping the 0.3% increase forecast by

economists.

Elsewhere, leading cryptocurrency bitcoin reached a

one-week high of $62,717, and last traded about 3.3% higher at

$61,500. For the week, it was up about 4%.