(Updates at 0850 GMT)

By Ankur Banerjee and Harry Robertson

SINGAPORE/LONDON, Aug 7 (Reuters) - The yen dropped on

Wednesday after an influential Bank of Japan official played

down the chances of a near-term rate hike, soothing investors'

concerns that a further jump in the Japanese currency could

again rock global markets.

The yen fell around 2.5% to a session low of

147.94 per dollar following the comments from BOJ Deputy

Governor Shinichi Uchida. The dollar was last up 1.7% at 146.79

yen.

"As we are seeing sharp volatility in domestic and overseas

financial markets, it's necessary to maintain current levels of

monetary easing for the time being," Uchida said.

His remarks, which contrasted with Governor Kazuo Ueda's

hawkish comments made last week when the BOJ unexpectedly raised

interest rates, sent Japanese stocks higher, leaving

them effectively flat for the week.

The BOJ's hike last week, along with intervention from Tokyo

in early July, led investors to bail out of once-popular carry

trades in which traders borrow the yen at low rates to invest in

assets that offer higher returns.

The carry unwind has combined with weak U.S. jobs data and

fears about an artificial intelligence bubble to send global

stocks tumbling this week, started by a 12% crash in Japanese

equities on Monday.

"I think it's become increasingly clear that the BOJ

hawkish turn last week could be a policy error," said Alvin Tan,

head of Asia FX strategy at RBC Capital Markets. "Japan's

economy is actually in poor shape, especially domestic demand."

The U.S. dollar index, which measures the currency

against six rivals, rose 0.15% to 103.13, inching further away

from the seven-month low of 102.15 it touched on Monday.

Rong Ren Goh, a portfolio manager in the fixed income team

at Eastspring Investments, said that "Uchida has saved the carry

trade - for now".

"Japan policy is one of the important moving parts of the

overall risk structure in the market. The other important ones

would be U.S. economic data, which in turn informs Fed policy

trajectory."

The yen's decline was broad based, with the Mexican

peso, New Zealand dollar and Australian dollar - all carry trade

candidates - surging against the currency.

RATE CUT WAGERS

The euro eased 0.1% to $1.0923, down from an eight-month

high of $1.101 hit on Monday as the dollar dropped. Sterling

was 0.1% higher at $1.2704.

Traders ramped up their bets on Federal Reserve rate cuts on

Monday following an unexpected jump in the unemployment rate on

Friday, at one point pricing in more than 125 basis points of

reductions this year.

Those bets have gradually come down, and traders on

Wednesday were expecting 100 bps of easing this year and a 62%

chance of a 50 bp cut in September, having priced it as a near

certainty on Monday.

In other currencies, the Australian dollar was

0.64% higher at $0.6561, a day after the central bank ruled out

the possibility of an interest rate cut this year, saying core

inflation is expected to come down only slowly.

The Aussie has struggled in recent days, sinking to

eight-month lows on Monday in the wake of the global market

meltdown but perked up on the day following BOJ comments.

Mark Matthews, head of research for Asia at Julius Baer,

said there is no real need for the BOJ to continue raising

interest rates.

"After the dust settles, the very wide interest rate

differential between Japan and other countries will once again

become the primary determination of the yen's valuation versus

other currencies."

The New Zealand dollar was up 1.11% at $0.6018

following strong jobs data.