* European shares track Asia, U.S. gains overnight
* Gains capped as investors brace for U.S. jobs data
* Dollar on back foot vs other currencies
By Emelia Sithole-Matarise
LONDON, Sept 3 (Reuters) - European stocks edged higher on Friday after U.S. shares climbed, but the dollar struggled as markets braced for a key U.S. labour report expected to show more job losses, clouding the outlook for recovery.
U.S. non-farm payrolls likely took a hit from a combination of a fading boost from census hiring, companies' reluctance to hire staff and further layoffs at cash-strapped state and local governments.
Surprisingly strong U.S. manufacturing data earlier this week had dispelled some gloom about faltering growth, but investors were far from convinced all is well.
The pan-European FTSEurofirst 300 index rose 0.5 percent, on course for a rise of 3 percent over the week. World stocks as measured by the MSCI were up 0.6 percent, propped up by the gains in European and Asian shares.
"People are watching the growth in (U.S.) private sector employment, which is likely to be too low to be good enough for the economy," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin.
"The market is going up on relatively unconvincing economic data. It just needs to know there won't be a double dip."
Underscoring simmering angst about U.S. growth, the yen remained locked close to a 15-year high against the dollar and the 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 last month.
Against a basket of currencies, the dollar was a touch lower on the day at 82.42.
Market participants said traders were short of dollars heading into the figures due at 1230 GMT expected to show U.S. non-farm payrolls fell 100,000 in August following a loss of 131,000 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 the upside, it will support the market's view that the Fed will not raise rates for a very long time," said Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.
He added that this would also raise speculation the Federal Reserve may implement more quantitative easing to boost the economy, which would be negative for the dollar.
U.S. Treasury debt prices were mostly steady in Europe with traders focused on whether the jobs data would provide a catalyst for a further rebound in the benchmark 10-year yield from last week's 19-month low. The 10-year T-note yield was last unchanged on the day at 2.627 percent while German 10-year bond yields were up 1 basis point at 2.293 percent. Bond prices and yields 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 as Hurricane Earl neared the country's east coast, fuelling concerns of disruptions to refineries and demand during the Labour Day long weekend. U.S. crude was last down 0.5 percent at 74.63 a barrel. (Additional reporting by Brian Gorman and Naomi Tajitsu; Editing by Hugh Lawson)