* Dollar index struggles near 8-month low
* Tuesday's U.S. payrolls data in focus
* Overnight implied volatility in dlr/yen, euro/dlr rise
By Anirban Nag
LONDON, Oct 21 (Reuters) - The dollar rose against the yen and the Swiss franc on Monday as some investors positioned for a strong U.S. jobs data reading on Tuesday, which could revive debate about when the Federal Reserve will scale back monetary stimulus.
But the U.S. currency was pegged back against the euro , sterling and the higher-yielding Australian dollar, leaving it struggling near an eight-month low against a basket of currencies.
The dollar has been under pressure since the U.S. debt crisis flared, with disruption from the 16-day government shutdown that ended last week leading markets to conclude the Fed will delay plans to trim its bond buying for several months.
But the near-term focus was on the September jobs report, which was delayed due to the shutdown. It is forecast to show 180,000 jobs were created last month while the jobless rate is expected to remain steady at 7.3 percent.
If the data exceeds expectations, then speculation over whether the Fed can taper this year or not is likely to return, injecting some volatility in the currency market.
The dollar index was flat at 79.688, not far from a trough of 79.478 touched on Friday, its lowest point since February. The dollar edged up 0.3 percent against the yen to 98.10 yen, inching towards a near three-week high of 99.01 yen set last Thursday.
The dollar was 0.15 percent higher against the Swiss franc at 0.9035 francs.
"We forecast non-farm payrolls to increase by 200,000 and the unemployment rate to decline to 7.2 percent," said Chris Walker, currency strategist at Barclays. "Results in line with our forecast would likely lead to a broad dollar rally, as expectations for a taper delay are pared back."
Barclays recommended long dollar positions against the yen.
While a majority of market players now expect the Fed will begin reducing stimulus only next year, a few analysts still believe tapering could start in December.
Those expectations may get a boost if a slew of upcoming U.S. data including the jobs report shows the economy gained momentum despite the fiscal stalemate that took the United States to the brink of default.
Some of that uncertainty was reflected in a pick-up in overnight implied volatilities, a gauge of how choppy a currency pair is likely to be. The euro/dollar vols ticked up to around 10.35 percent from around 4.5 percent on Friday.
Implied vols in dollar/yen also rose.
"We could see some dollar strength going into the payrolls data, especially given the magnitude of the selloff in the past few days," said Ian Gunner, portfolio manager at Altana Hard Currency Fund.
"If the jobs number beats expectations and is backed up by good retail sales and durable goods data we could see some speculation of Fed tapering return. That could see the dollar strengthen, but overall I would want to fade into such a move."
The euro was steady at $1.3678, not far from an eight-month high of $1.3704 on Friday on trading platform EBS, almost touching this year's peak of $1.3711.