* Dollar flat as traders square up ahead of US payrolls, G7
* Media report on ECB supports euro
* Global rebalancing, reserves flows cap dollar
(Adds comment and quote, updates prices)
By Jamie McGeever
LONDON, Oct 2 (Reuters) - The dollar was flat against a basket of major currencies on Friday as dealers squared positions ahead of U.S. jobs data later in the day and a meeting of Group of Seven finance chiefs over the weekend.
The euro rose broadly on a Market News report citing "well-placed monetary sources" that the European Central Bank was discussing raising interest rates and unwinding its liquidity provision programmes, even though it would not do so for some time.
But trading ranges were narrow before the U.S. employment report for September at 1230 GMT, the economic indicator that has probably the single biggest impact on financial markets.
"While it's prudent for central banks to discuss the possibility of raising rates at some point, (it is) less prudent for any of the big three central banks -- the U.S., UK and euro zone -- to move any time in the coming six months," said Lauren Rosborough, senior currency strategist at Westpac in London.
"These comments are being taken too literally," she said, refering to the Market News report.
Traders were also reluctant to take on big bets ahead of the G7 in Istanbul this weekend, where finance chiefs will likely reiterate their call to address global trade and investment flow imbalances, a process which could weaken the dollar over time.
At 0940 GMT the euro was up 0.2 percent on the day at $1.4555, rebounding from a three-week low of $1.4502 hit earlier in the day.
Dealers reported good demand from Asian reserve managers in the low $1.45s and stronger support at $1.4450, a break of which to the upside in early September was key and so could be equally significant if it gave way on the downside.
Traders also reported options expiries at $1.4550 rolling off later on Friday.
The euro pared losses against the yen to trade flat at 130.15 yen and was up 0.5 percent against sterling at 91.60 pence.
CURRENCY TALK AT G7?
The dollar index, a measure of the dollar's value against six major currencies, was unchanged on the day at 77.20.
The dollar benefited from weakness in global equity and commodity markets after soft U.S. economic data renewed fears over the global recovery, triggering profit-taking in these assets, higher-yielding currencies and broad risk reduction.
This meant investors bought back the dollars they had used to fund purchases of other currencies and assets in recent weeks, strengthening the U.S. currency's safety bid in times of market uncertainty and diminishing appetite for risk.
But its gains were limited by the euro's rise, falling U.S. bond yields and expectations surrounding the G7 and by long-term prospects for a weaker dollar and currency appreciation across much of Asia and emerging markets.
"For today, it's all about being square, not being too aggressive on positioning," said Roberto Mialich, FX strategist at Unicredit in Milan, adding the dollar would "perversely" benefit from falling U.S. stocks and weak jobs data.
A median forecast of economists polled by Reuters suggests 180,000 jobs were lost last month, down from 216,000 in August.
The dollar was down 0.2 percent against the yen at 89.40 yen, within sight of an eight-month low of 88.23 yen struck on EBS on Monday. Some attributed the yen's rise to a domestic media report that Japan's finance minister reiterated he would not discuss the yen's recent rise versus the dollar at G7.
The greenback, however, gained as much as 0.6 percent against the Australian, Canadian and New Zealand dollars as equity market weakness hit the so-called "commodity currencies". European stocks were last down 1.2 percent and U.S. futures pointed to a lower open on Wall Street.
The euro's gains were capped, however, with traders recalling European Union's Economic and Monetary Affairs Commissioner Joaquin Almunia's remark on Thursday that the single currency's recent gains would be raised at G7.
Federal Reserve Chairman Ben Bernanke said on Thursday the dollar would weaken if it lost its status as the international reserve currency. This was not a near-term risk, however, so long as the United States took steps to manage its fiscal problems.
U.S. Treasury Secretary Tim Geithner repeated the familiar line that a strong dollar was important to the United States.