By Satomi Noguchi TOKYO (Reuters) - The U.S. dollar held firm against most major currencies on Friday with investors sitting tight ahead of a U.S. payrolls report for September due later in the day. The dollar rose earlier as investors cut short positions and booked profits in higher-yielding currencies, but gains were capped as those moves receded, and by falling U.S. bond yields. The yield on benchmark 10-year Treasuries notes fell to 3.15 percent, its lowest in more than four months, on a slide in regional stocks and speculation that the September jobs report might come in weaker than previously expected. Some traders said falling U.S. Treasury yields may contribute to a further fall in dollar/yen due to the shrinking yield gap in longer-term debt between the United States and Japan. "Our past experience suggests this will likely make dollar/yen top-heavy as people look at longer bond yields for guidance on dollar/yen direction," said Kosuke Hanao, head of Treasury products sales for HSBC in Tokyo. The yen rose broadly as Tokyo's benchmark share average fell further below the psychologically key 10,000 mark, prompting some traders to think Japanese retail investors may become hesitant to take risks and invest overseas. The U.S. dollar dipped 0.2 percent to 89.40 yen, within sight of an eight-month low of 88.23 yen struck on EBS on Monday. Some attributed the yen's rise against the dollar to a domestic media report that Japan's finance minister reiterated he will not discuss the yen's recent rise versus the greenback at a weekend meeting of the Group of Seven finance ministers and central banks in Istanbul. The euro fell as low as 129.65 yen, a lowest since mid-July, before recovering to 130.05 yen, down 0.2 percent. AWAITING US DATA The median forecast is for a drop of 180,000 in U.S. payrolls in September, slowing from the 216,000 that were shed in August, though Goldman Sachs caused a stir by revising its forecast to show a much bigger drop.. Earlier this week, the ADP report for private sector employment did not bode well for the jobs report, so investors will be wary of going long on riskier assets and high-yielding currencies. On Thursday, investors also chose to focus on the lower-than-expected manufacturing number from the Institute for Supply Management and a rise in weekly jobless claims. Those numbers managed to overshadow a sharp 1.3 percent jump in personal spending. The U.S. dollar often gains when investors appear uncertain about the likely pace of the economic rebound and long positions in riskier assets like stocks and higher-yielding currencies get unwound. The euro edged down 0.1 percent to $1.4536. It fell as low as $1.4502 earlier, a three-week low, extending the previous day's slide made when the European Union's Economic and Monetary Affairs Commissioner Joaquin Almunia said the G7 meeting this weekend would discuss the single currency's recent gains. European Central Bank President Jean-Claude Trichet has lent support to that view, saying excess foreign exchange moves had an adverse impact. On Monday, he backed the argument for a strong U.S. currency.

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