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.

The U.S. currency extended gains against the Japanese yen to

a fourth day, buoyed by a spike in Treasury yields following

Thursday's firmer-than-expected employment data, which spurred a

paring back in bets for Federal Reserve interest rate cuts this

year.

The yen and fellow safe-haven currency the Swiss franc

languished near one-week lows after Wall Street rallied on the

improved macroeconomic outlook, while riskier currencies such as

the Australian dollar and sterling remained elevated following

strong gains overnight.

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 on Monday, 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 was up 0.27% at 147.66 yen as of 1153

GMT, on course for an advance of around 0.8% this week, despite

Monday's precipitous 1.5% plunge.

It was flat at 0.8670 franc, keeping it 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% on Wednesday, 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.

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 and 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 flat

at 103.30 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 $1.0915, up 0.08%

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 $1.2744, after a 0.49% rally

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

However, it remained on course for a 0.42% slide this week,

which would be a fourth straight week of declines.

The Aussie eased slightly to $0.6584 after earlier

touching $0.65925 for the first time since July 24, given

additional support from the Reserve Bank of Australia's hawkish

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

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%.