The dollar held steady against a basket of major currencies on Friday as investors waited for the U.S. government's monthly employment report to offer clues to the potential pace of tightening in U.S. monetary policy.

Economists polled by Reuters forecast the U.S. economy lost 130,000 jobs in November, compared with 190,000 in October, while the November unemployment rate was forecast to be unchanged at 10.2 percent.

Traders were wary, however, after White House spokesman Robert Gibbs said on Thursday that Wednesday's ADP private sector payroll report had signaled the November unemployment level may tick up.

The Canadian dollar, meanwhile, jumped to a session high after Canadian jobs figures for November came in far stronger than expected: 79,000 jobs were created last month, more than five times the 15,000 forecast in a Reuters poll of analysts.

China said earlier on Friday it would look to diversify its huge foreign exchange reserves across currencies and high quality assets, but the dollar would remain the anchor currency.

The (China) story remains one of continued diversification away from the dollar but the process will be relatively slow. But the main focus today is very much on payrolls, said Robert Minikin, senior FX strategist at Standard Chartered in London.

On the whole, the dollar is putting in a bit of a bid here, led by dollar/yen. The retracements have been quite shallow, so there seems to be quite a lot of momentum behind the move.

At 7:20 a.m. EST (1220 GMT), the dollar was flat against a currency basket at 74.622, and the euro was steady at $1.5071.

The dollar was up 0.2 percent against the yen at 88.37 yen, having recovered from a 14-year low of 84.82 yen hit last week on trading platform EBS after the Bank of Japan on Tuesday announced extra liquidity-boosting steps to fight deflation.

The Canadian dollar rose to a session high of C$1.0470 per U.S. dollar, up more than half a percent on the day and up from around C$1.0530 before the Canadian data were released.

The unemployment rate dipped to 8.5 percent from 8.6 percent. Analysts had expected a rise to 8.7 percent.

FUNDAMENTAL REACTION

There was little immediate reaction on currency markets to the statement from China's State Administration of Foreign Exchange on the country's reserves, as all eyes were on the U.S. payrolls number at 8:30 a.m. EST (1330 GMT).

Some analysts believe a positive number may weigh on the dollar as it feeds investor risk appetite for stocks, commodities and non-dollar currencies.

But others suggest the dollar and financial markets may be reacting to fundamental data in a more predictable fashion and that a brighter picture of the U.S. labor market would lift expectations of Fed tightening and therefore support the dollar.

As we approach year-end, people will start to anticipate ... Fed tightening and interpret good U.S. data as an indication of a possible early Fed exit, said Adarsh Sinha, currency strategist at Barclays Capital in London.

Expectations U.S. interest rates will stay ultra-low for some time have encouraged investors to use the dollar as a funding currency to invest in riskier and higher-yielding currencies.

The euro neared a 16-month high against the dollar around $1.5140 on Thursday after European Central Bank President Jean-Claude Trichet said the next 12-month refinancing operation for banks would be the last.

But it lost steam as Trichet said liquidity moves should not be seen as a signal on interest rates. The ECB left rates at a record low 1.0 percent at Thursday's meeting.

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