* Yen rises broadly, hits 7-week high against dollar
* Risk aversion continues on uncertainty about economy
* U.S. private sector sheds 298,000 jobs in August (Adds comment, details, updates prices, changes byline)
By Nick Olivari
NEW YORK, Sept 2 (Reuters) - The yen touched a seven-week high versus the dollar amid gains across the board on Wednesday, as a worse-than-expected U.S. private-sector jobs report boosted the safe-haven appeal of the Japanese currency.
The yen also jumped to seven-week highs versus the euro and sterling as the data, which came two days ahead of the U.S. government's August unemployment report, added to uncertainty about the U.S. labor market and helped prolong risk aversion.
"The outlook for nonfarm payrolls is not clear. There's hesitancy in the currency market and it's being reflected in equities as well," said Kathy Lien, director of currency research at GFT Forex in New York.
Private employers cut 298,000 jobs in August, according to the ADP Employer Services report, jointly developed with Macroeconomic Advisers LLC. Economists had expected job losses of 250,000, although the number was fewer than a revised 360,000 lost in July.
In midafternoon New York trading, the dollar fell 0.8 percent to 92.16 yen after hitting a low of 92.10, according to Reuters data, its lowest since mid-July.
The yen was up 0.9 percent against the Canadian dollar, 0.2 percent against the Swiss franc and 0.3 percent against the euro.
The dollar index, measuring the currency against a basket of other major units, was last off 0.5 percent at 78.368.
ECB, PAYROLLS
Against the dollar, the euro recouped earlier losses and last traded up 0.4 percent at $1.4281. It touched $1.4175 on Tuesday, the lowest since Aug. 19.
The European Central Bank is widely expected to keep interest rates at 1.0 percent on Thursday, with ECB President Jean-Claude Trichet likely to caution against growing talk of a full-blown euro zone economic recovery.
On Friday, the U.S. government will release the nonfarm payrolls report for August, which includes public and private sector jobs. Economists polled by Reuters expect job losses of 225,000 for August.
Some traders said yen gains were being driven by short-term speculators building long yen positions ahead of the Labor Department report. A weak reading may drive the dollar/yen down to the 90 yen mark, they said.
"The trend is improving, but the bottom line, though, is that the U.S. economy is still bleeding jobs, and as a result we're seeing selling in risk trades in the currency market," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York.
In other trading, the Australian dollar rose 1.1 percent to $0.8357 after data showed Australia's economy grew at its fastest pace in more than a year last quarter, supporting the case for an early rise in interest rates.
Investors are looking to the release of the minutes to the U.S. Federal Reserve's last policy meeting at 2 p.m. (1800 GMT) for fresh clues on the outlook for the U.S. economy. (Additional reporting by Gertrude Chavez-Dreyfuss and Wanfeng Zhou; Editing by James Dalgleish)