By Emelia Sithole-Matarise

LONDON, Sept 3 (Reuters) - European stocks edged higher onFriday after U.S. shares climbed, but the dollar struggled asmarkets braced for a key U.S. labour report expected to showmore job losses, clouding the outlook for recovery.

U.S. non-farm payrolls likely took a hit from a combinationof a fading boost from census hiring, companies' reluctance tohire staff and further layoffs at cash-strapped state and localgovernments.

Surprisingly strong U.S. manufacturing data earlier thisweek had dispelled some gloom about faltering growth, butinvestors were far from convinced all is well.

The pan-European FTSEurofirst 300 index rose 0.5 percent, oncourse for a rise of 3 percent over the week. World stocks asmeasured by the MSCI were up 0.6 percent, propped up by thegains in European and Asian shares.

"People are watching the growth in (U.S.) private sectoremployment, which is likely to be too low to be good enough forthe economy," said Bernard McAlinden, investment strategist atNCB Stockbrokers in Dublin.

"The market is going up on relatively unconvincing economicdata. It just needs to know there won't be a double dip."

Underscoring simmering angst about U.S. growth, the yenremained locked close to a 15-year high against the dollar andthe Swiss franc near a record peak against the euro.

The U.S. currency traded flat at 84.27 yen by 0835 GMT,hovering in range of a 15-year low of 83.58 yen hit late lastmonth.

Against a basket of currencies, the dollar was a touch loweron the day at 82.42.

Market participants said traders were short of dollarsheading into the figures due at 1230 GMT expected to show U.S.non-farm payrolls fell 100,000 in August following a loss of131,000 the previous month.

For a graphic on non-farm payrolls, click:

http://graphics.thomsonreuters.com/F/09/US_NFPP0910.gif

FED SPECULATION

"If the figure does not provide a massive surprise to theupside, it will support the market's view that the Fed will notraise rates for a very long time," said Ulrich Leuchtmann,currency strategist at Commerzbank in Frankfurt.

He added that this would also raise speculation the FederalReserve may implement more quantitative easing to boost theeconomy, which would be negative for the dollar.

U.S. Treasury debt prices were mostly steady in Europe withtraders focused on whether the jobs data would provide acatalyst for a further rebound in the benchmark 10-year yieldfrom last week's 19-month low. The 10-year T-note yield was lastunchanged on the day at 2.627 percent while German 10-year bondyields were up 1 basis point at 2.293 percent. Bond prices andyields move inversely.

Commodity prices barely budged. Gold was little changed at$1,251.05 an ounce but oil fell for the first day in three asHurricane Earl neared the country's east coast, fuellingconcerns of disruptions to refineries and demand during theLabour Day long weekend. U.S. crude was last down 0.5 percent at74.63 a barrel. (Additional reporting by Brian Gorman and Naomi Tajitsu;Editing by Hugh Lawson)