* Dollar index off 8-1/2 month lows
* Stronger-than-expected payrolls would help dollar
* Dollar/yen below Sept 15 intervention level (Adds quote, updates prices)
By Tamawa Desai
LONDON, Oct 8 (Reuters) - The dollar held steady on Friday, recovering from a sell-off earlier this week as investors booked profits and braced for U.S. jobs data and Group of Seven (G7) and IMF meetings in Washington later in the day.
The dollar remained under pressure as market players expect the U.S. Federal Reserve to pump more money into the economy next month. Those expectations boosted the euro by 7.5 percent last month and pushed it to its highest level since January.
Market players were wary about a surprise improvement in the jobs data as it would temper expectations of aggressive Fed easing, and might prompt a squeeze on dollar shorts.
"The market is already positioned for a weaker labour market and more quantitative easing," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"We'd have to see a number above 100,000 or 150,000 to make a significant difference," he said.
The last reading of U.S. payrolls before the U.S. mid-term elections is forecast as unchanged in September, with the unemployment rate seen edging up to 9.7 percent from 9.6 percent in August.
Markets were also wary in case the G7 and IMF meetings starting 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.
This wariness helped to knock the euro off an eight-month high of $1.4030 hit on the EBS platform on Thursday. It was flat from late U.S. trade at $1.3916. Options with a strike price of $1.3910 were set to expire later in the day.
"The euro is being used as a counterpart for dollar depreciation. For the time being, policymakers aren't raising alarm, but if it if rises to $1.50-1.60 it can be a potential danger," said Roberto Mialich, currency strategist at Unicredit in Rome.
A spokesman for the European Commission, the EU executive, said on Thursday the bloc would continue sending the message that the euro is carrying an excessive burden because of global economic imbalances.
DOLLAR INDEX FLAT, YEN FIRM
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was also flat at 77.445. It hit an 8-1/2 month low of 76.906 on Thursday.
It has support at 76.60, which is a low back in mid-January and the index low for 2010. Initial resistance is expected at 77.70, the top of Thursday's price action, and then 78.05-10, which was support at the start of October and in January.
But the market expects the dollar to remain on the back foot until the next Fed policy-setting meeting, set for Nov. 2-3.
"If non-farm payrolls data improves and the unemployment rate decreases then the dollar may recover for several days but that won't change the big picture of low inflation," said Masafumi Yamamoto, chief Japan FX strategist at Barclays.
"Ahead of the FOMC meeting (on Nov. 3) the dollar's recovery is likely to be very temporary."
The Japanese yen held near its 15-year peak against the dollar as traders are starting to feel that Japan may not intervene for now -- at least not as aggressively as it did last month -- to keep the yen's gains in check.
The dollar traded at 82.36 yen, less than 30 pips from a 15-year low of 82.11 yen hit on Thursday and edging ever closer to its 1995 record low of 79.75 yen.
The initial downside target is 81.30 yen, with resistance expected at the former supports of 82.87 and 83.15. Option barriers are lined up at 82 yen and below.
Japanese Prime Minister Naoto Kan said Japan will take decisive steps on forex if needed but added it also wants to cooperate with the G7 and other countries.
The Australian dollar fell 0.7 percent to $0.9761, after hitting $0.9918 on Thursday, its highest in 28 years. (Editing by Toby Chopra)