By Hannah Lang

NEW YORK (Reuters) -The dollar was off a one-week high against other major currencies on Friday, capping off a turbulent few days as traders digested a drop in U.S. jobless claims and the prospect of a looming economic downturn.

The U.S. currency was down against the Japanese yen following a three-day rebound, as Thursday’s firmer-than-expected employment data spurred a paring back in bets for Federal Reserve interest rate cuts later this year.

The yen and the Swiss franc – another safe haven currency – hung near one-week lows as major stock markets rose and Treasury yields dipped.

Markets have endured a chaotic week, triggered in large part by surprisingly soft U.S. payrolls figures a week ago that sent global stocks tumbling, while demand for the safety of assets such as the yen and the franc sent those currencies surging to their highest since the start of the year on Monday.

The dollar was last down 0.39% at 146.675 yen, but still on course for its first weekly rise in six weeks.

“There’s been a major desire by market to finally use the yen as a complete source of a safe haven to the chaos and the conflict that’s going on around the world,” said Juan Perez, director of trading at Monex USA in Washington.

The dollar index, which measures the currency against six others, was down 0.136% at 103.14 following three days of gains.

Against the Swiss franc, it eased 0.18% to 0.865 franc but still on track for a weekly advance.

“The prospect of having a pure risk-on environment, pro carry for FX, for the second half of this year, is much less interesting given our forecasts are more conservative on the dollar/yen and the euro/Swiss franc,” said UBS FX strategist Yvan Berthoux.

“We don’t expect more significant unwind to come. The washout has been quite clear in this environment.”

Data on Thursday showed the number of Americans filing new applications for unemployment benefits fell more than expected last week, calming fears the labour market was unravelling and reinforcing that a gradual softening remains intact.

The odds of the Fed cutting interest rates by 50 basis points at its next policy meeting on Sept. 17-18 fell to 52%, from 69% a day earlier, with a 25 basis point cut now seen as having a 49% probability, according to the CME Group’s FedWatch Tool.

UNWINDING OF SHORT YEN DONE?

The yen had shot higher this month, reaching the strongest since Jan. 2 at 141.675 per dollar on Monday, as an unwinding of short positions snowballed, following a surprise rate hike by the Bank of Japan amid weakness in U.S. economic indicators.

U.S. Commodity Futures Trading Commission figures will give a clearer indication later on Friday of the extent of yen buying that has taken place.

The euro was flat at $1.0919, but little changed compared with a week ago. On Monday, it rose as high as $1.1009 for the first time since Jan. 2.

Sterling rose to $1.2756, after a 0.5% rally overnight that yanked it back from a more than one-month low.

The Aussie slipped 0.29% to $0.657, while the New Zealand dollar reached a three-week high of $0.6035 before retreating. It was last at 0.5998.

(Reporting by Hannah Lang in New York; additional reporting by Kevin Buckland in Tokyo and Sruthi Shankar in Bengaluru; Editing by Muralikumar Anantharaman, Miral Fahmy and Jonathan Oatis)

---