(Updates at 1903 GMT)

By Hannah Lang

NEW YORK, 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 about 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 1.74% at 146.850 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 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 we're still going through a little bit of an unwind

from what was, at least thematically from a market perspective,

a little bit of an overreaction," said Marvin Loh, senior global

macro strategist at State Street in Boston.

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

against six rivals, rose 0.214% to 103.2, inching further above

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

"The drama - the sturm und drang - of these kind of moves in

equities are great stories, but they don't necessarily... signal

a greater economic catastrophe. I just don't see it," said

Joseph Trevisani, senior analyst at FX Street in New York.

CARRY TRADES

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

New Zealand dollar and Australian dollar - all carry trade

investment candidates - surging against the currency.

The Swiss franc, another currency that was used to

fund carry trades, like the yen, was down around 1.18% to 0.862

per dollar.

The euro was down 0.09% at $1.092, below an

eight-month high of $1.101 hit on Monday as the dollar dropped.

Sterling was 0.06% lower at $1.268.

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 basis point cut in September, having priced it as

a near certainty on Monday.

"I think you start to see people saying, hey, let's go more

and more through the details of what's going on in the labor

market, and really come to the conclusion that things are really

not falling apart lightning quick in the United States," said

Stephen Miran, senior strategist at Hudson Bay Capital.

In other currencies, the Australian dollar was

0.01% lower at $0.652, 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 an

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

meltdown, but perked up on the day following the BOJ comments.

The New Zealand dollar was up 0.63% at $0.599

following strong jobs data.