TOKYO, Jan 5 The yen surged higher across the board on Friday, pulling further away from

TOKYO, Jan 5 (Reuters) The yen surged higher across the board on Friday, pulling further away from 2-1/2-month lows against the dollar on talk that the Bank of Japan could bump up interest rates as early as this month.

Traders said the yen was also bought against the euro on caution that the Japanese currency had been pushed too low too fast in a run of record lows last year, prompting the high-yielding Australian and New Zealand dollars to tumble against the yen.

Expectations that Japanese rates could rise again soon were reinforced at the start of the week when the Yomiuri newspaper reported that the BOJ may consider a hike from the current 0.25 percent at a two-day policy meeting that starts on Jan. 17.

Speculation about an improvement in the yen's current rate disadvantage has triggered the unwinding of carry trades in which investors borrow the low-yielding yen to buy higher-yielding currencies.

''The underlying factor is the BOJ rate hike expectations which have increased due to media reports in the past few days,'' said Toru Umemoto, chief forex strategist at Barclays Capital in Tokyo.

''Yen carry trades have accumulated significantly due to the BOJ's super-low interest rate policy,'' he said. ''The BOJ could raise rates in January, which could bring another round of unwinding.'' By 0505 GMT, the dollar fell 0.6 percent to 118.35 yen It extended the previous day's 0.2 percent loss after hitting 119.68 yen earlier in the week -- the highest since mid-October.

The euro was buying 154.65 yen That was down more than 1 yen from around 155.75 yen in late U.S. trade on Thursday, when the euro fell 0.8 percent. It hit a record high of 158.06 yen on Wednesday.

The Australian dollar, also under pressure as commodity prices came off highs, skidded 0.8 percent to 92.55 yen as traders took profits on the Aussie's rise to another 9-1/2-year peak earlier this week.

The New Zealand dollar, the highest-yielding currency in the industrialised world, slumped 1.6 percent to 81.65 yen That was well off a one-year peak of 84.71 yen touched just two days earlier.

U.S. PAYROLLS LOOM LARGE The U.S. currency fared better against European currencies, with the euro dipping to $1.3070 from around $1.3085, while sterling struck a fresh one-month low of $1.9351.

The dollar found strength against currencies other than the yen ahead of the much-awaited nonfarm payrolls figures at 1330 GMT.

The data should offer insight on whether the Federal Reserve will cut rates from the current 5.25 percent in the coming months to help shore up a slowing economy.

''If the numbers are even a little bit higher or lower, the market's going to take that as a big factor'' to predict the trend for currencies, said Hidenori Kato, head of forex sales and trading at Societe Generale in Tokyo.

The median forecast in a Reuters poll is for the payrolls data to show a gain of 100,000 jobs in December.

The latest crop of U.S. economic data -- including pending homes sales and the Institute for Supply Management's report on the services sector -- did nothing to change a view that although the U.S. economy is slowing, there are no signs of a sharp deceleration in growth on the horizon.

REUTERS CS SSC1125