* Dollar turns higher after Fed's Bullard comments
* Bullard says more easing not obvious case, face tough call
* All eyes on U.S. payrolls at 1230 GMT (Adds quote, updates prices)
By Jessica Mortimer
LONDON, Oct 8 (Reuters) - The dollar rose on Friday after a U.S. policymaker played down the chances of aggressive monetary easing, prompting investors to take some profit on the greenback's recent falls before key U.S. jobs data.
St. Louis Fed chief James Bullard, a voting member this year on the U.S. Federal Reserve's rate-setting committee, told CNBC that policymakers face a tough decision at next month's policy meeting as the economy has slowed but is still bumping along. [ID:nN08192815]
Market speculation the Fed will resume quantitative easing when it meets on Nov. 2-3 to shore up the economy has increased. But Bullard did not rule this out, saying more help from policy may be needed to push up inflation.
"Bullard is confirming himself as an incrementalist who is not in the very aggressive easing camp," said Chris Turner, head of FX strategy at ING.
"The reaction to the comments was very much a function of positioning - we've had an almost uninterrupted dollar decline and going into the payrolls numbers there is a risk of short-term position squaring in the dollar".
The last reading of U.S. payrolls before the U.S. mid-term
elections will be used by the market as a gauge of how
aggressive U.S. easing could be. Payrolls data, due at 1230 GMT,
is forecast to be flat in September, with the unemployment rate
seen edging up to 9.7 percent from 9.6 percent. [ID:nN05187700]
At 1121 GMT, the euro was down 0.2 percent at $1.3896, knocked off an eight-month high of $1.4030 hit on the EBS trading platform on Thursday. It hit a session low of $1.3843 after the Bullard comments.
Traders said options expiries at $1.3910 and $1.3950 were due later in the day.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.2 percent at 77.544 <.DXY>, moving above an 8-1/2 month low of 76.906 on Thursday. It has support at 76.60, the index low for 2010 hit in mid-January.
The Australian dollar
PAYROLLS, G7/IMF AHEAD
Market players were wary about a surprise improvement in the U.S. jobs data as it would temper expectations of aggressive Fed easing.
"The big question given the recent speed of the U.S. dollar declines is how much possible QE is already priced in? How the markets react to this afternoon's figures should give us some indication of that," CMC Markets' Michael Hewson said in a note.
Markets were also wary in case G7 and IMF meetings starting in Washington on Friday produce a surprise in the form of a coordinated front on currencies, as calls have mounted for global efforts to avoid competitive currency devaluations.
http://r.reuters.com/dyw27p
FX tensions interactive map http://r.reuters.com/jec96p
FX COLUMN on payrolls [ID:nLDE69617N]
The dollar traded at 82.26 yen
Japanese Prime Minister Naoto Kan said Japan would take decisive steps on the strong yen if needed but added it also wanted to cooperate with the G7 and other countries. [ID:nTOE69700W] (Additional reporting by Tamawa Desai; Graphics by Scott Barber; Editing by Susan Fenton)