* USD up on hawkish comments from Fed official, higher US yields
* Pound remains on defensive, plumbs fresh 31-year low
* Euro steadies after surging on report about ECB policy change
By Shinichi Saoshiro
TOKYO, Oct 5 (Reuters) - The dollar hovered near a two-month high against a basket of currencies on Wednesday, lifted by hawkish comments from a Federal Reserve official and a sharp rise in U.S. Treasury yields.
The pound marked fresh three-decade lows amid lingering concerns that Britain's approach towards exiting the European Union could have grave economic consequences.
The dollar index stood at 96.116, in sight of 96.442, its highest since Aug. 9.
The greenback was already on a strong footing after rallying at the start of the week on an upbeat survey of the U.S. manufacturing sector.
It got an additional lift after Richmond Federal Reserve President Jeffrey Lacker said on Tuesday there was a strong case for raising interest rates and as Treasury yields rose to two-week highs in response to a surge in euro zone debt yields.
The dollar inched down 0.2 percent to 102.705 yen after rising to a three-week high of 102.965 overnight, when it posted its sixth straight day of gains versus its Japanese peer.
"The U.S. dollar should continue to outperform but after six straight days of gains, traders should beware of a correction in USD/JPY ahead of Friday's non-farm payrolls report," wrote Kathy Lien, managing director of FX strategy for BK Asset Management.
Lien added a move by the dollar down to 102.50 yen would give traders an opportunity to reload their long positions before the U.S. jobs report.
The dollar's strength came in part from its gains against the pound, which slipped to a fresh 31-year trough of $1.2721 after shedding about 0.9 percent the previous day.
Many in the market worry that the British government's stance points to a "hard Brexit," in which Britain splits entirely from the single market in favour of retaining control over immigration, which could drive an exodus of banks from London.
The euro was flat at $1.1209, catching its breath after swinging wildly the previous day.
The common currency had slid on Tuesday to a low $1.1138 before climbing back to a peak $1.1239, along with a rise in euro zone debt yields in response to a report of a European Central Bank plan to taper its asset-purchase programme.
Bloomberg reported earlier on Tuesday that the ECB would probably wind down its 80-billion-euro monthly bond purchases gradually before ending its quantitative easing programme, citing unnamed sources.
An ECB media officer tweeted later on Tuesday, however, that the central bank's decision-making body has not discussed reducing the pace of its monthly bond buying. (Editing by Shri Navaratnam)