By Ian Chua and Dominic Lau
TOKYO/SYDNEY (Reuters) - Asian stocks were tentative and the dollar was in the driving seat on Friday, as investors waited with bated breath for a crucial U.S. jobs report that could cement the case for the Federal Reserve to begin scaling back its stimulus later this month.
Underlining expectations for an imminent turn in Fed policy, the euro held near a seven-week low on the back of dovish comments from the European Central Bank.
European shares were expected to open modestly lower, with Britain's FTSE 100 (.FTSE) seen down as much as 0.2 percent and Germany's DAX (.GDAXI) down 0.1 percent, according to financial bookmakers.
MSCI's broadest index of Asia-Pacific shares outside Japan was steady after six days of gains - its longest winning streak since December. It was on track to end the week up more than 2 percent.
Tokyo's benchmark Nikkei (NIK:^9452) shed 1.4 percent as investors locked in profit after a sharp rally in real estate and construction firms on hopes the city will win its 2020 Olympic Games bid this weekend. The index was still up 3.5 percent this week, however.
The euro wallowed at $1.3131, having slid one U.S. cent to be 0.7 percent lower on the week.
Investors sold the common currency after the ECB said it stood ready to act if needed to bring money market rates down and help nurture a "very, very green" recovery.
ECB President Mario Draghi made those comments as global government bond yields have risen sharply, tracking U.S. Treasuries in expectations for the Fed to start withdrawing support.
Indeed, U.S. 10-year note yields hit 3 percent on Thursday for the first time since July 2011, having jumped from near 1.6 percent in four short months and providing a major support for the dollar in the process.
The dollar index (.DXY), measured against a basket of major currencies, steadied near a seven-week peak but the greenback dipped 0.3 percent to 99.77 yen after it popped above 100 yen overnight to levels not seen since late July.
Latest U.S. data showed a solid expansion in the services sector, while private employers added 176,000 jobs in August, suggesting that non-farm payrolls could be surprisingly strong.
"The combination of a strong non-farm payrolls with this week's stunning U.S. ISMs ahead of the first Fed taper could send the dollar index towards 85," Societe Generale wrote in a note.
Some analysts said payrolls in line with expectations of 180,000 new jobs would likely be enough for the Fed to start tapering its $85 billion-a-month stimulus at the Sept 17-18 meeting.
TURKEY VS INDIA
Worries about reduced central bank support have weighed on demand for gold, hovering near a two-week low, and riskier assets, with emerging markets in the firing line.
Indonesia has had to raise interest rates to support the collapsing rupiah currency, while India's new central bank boss this week impressed some with an unexpectedly detailed and wide-ranging plan that saw the rupee and stocks rally on Thursday.
"The Indian rupee can continue to stabilize following recent measures aimed at encouraging U.S. dollar inflows," Morgan Stanley wrote in a note.
"While both the Indian rupee and Turkish lira are vulnerable to possible oil price spikes related to Syria intervention risks, Turkey is likely to command more of a risk premium due to its proximity and potential involvement."
The Indian rupee slipped 0.1 percent to 66.06 per dollar. It hit a record low of 68.80 last week
Morgan Stanley recommended investors to short the Turkish lira versus the Indian rupee.
The top five emerging market powers: Brazil, Russia, India, China and South Africa (BRICS) have also pledged to set up a $100 billion fund to stabilize currency markets.
But it looked unlikely to be in place soon enough to temper the effects of an expected pullback of Fed stimulus.
The Group of 20 emerging and developed powers gathered in St. Petersburg for a summit struggled to find common ground over the turmoil faced by emerging markets.
Leaders at the summit also had to contend with the tough question of whether to support U.S. military strikes in Syria.
(Editing by Eric Meijer & Shri Navaratnam)
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