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TOKYO, Aug 4 (Reuters) The euro steadied against the dollar on Friday after rallying the previous session as the European Central Bank raised interest rates, taking a breather before the release of crucial U.S. jobs data later this session.

The ECB's decision to raise rates by a quarter percentage point to 3 percent had been widely expected, but the euro rallied since the ECB hinted it might tighten policy further if euro zone inflation and growth continue to meet the bank's expectations.

The British pound also rallied on Thursday, climbing to an 11-week high of $1.8915 after the Bank of England surprised markets by raising interest rates to 4.75 percent.

''Since there were some comments that pointed to the possibility for additional rate rises, market sentiment slightly favours euro buying,'' said a dealer for a Japanese trust bank.

But the euro, which rose as high as $1.2835 on electronic trading platform EBS on Thursday, almost matching a one-month high hit this week, may struggle to log additional gains ahead of U.S.

payrolls data, the trader said.

The euro stood at $1.2791 as of 2352 GMT, easing from around $1.2800 in late U.S. trade.

After the ECB's rate decision, ECB President Jean-Claude Trichet said the central bank would monitor all developments closely to ensure price stability, boosting market expectations for another rate increase in October.

Sterling was last traded at $1.8863 as of 2359 GMT, down slightly from around $1.8875 in late U.S. trade.

The dollar was firmer against the yen at 115.16 yen buoyed by unwinding of short dollar positions ahead of the jobs data, traders said.

The jobs data is the last major indicator slated for release ahead of a Federal Reserve policy meeting next Tuesday.

Traders say the figures will be pivotal in determining expectations for whether the Fed will take a pause from a two-year campaign of raising interest rates, now at 5.25 percent.

Economists polled by Reuters expect a rise of 142,000 in the July nonfarm payrolls report, up from 121,000 in June.

As of late U.S. trading on Thursday, Fed fund futures reflected a 46 percent chance the Fed will raise rates another quarter point to 5.50 percent next week, up from 38 percent on Wednesday.

REUTERS VJ RK0555