* USD up on hawkish comments from Fed official, higher US yields
* Pound remains on defensive, struggles near 31-year low
* Euro extends gains after bouncing on report of ECB policy change
* Comments by ECB’s Nowotny, US ADP jobs report awaited for cues (Adds details and quotes, updates prices)
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 higher U.S. Treasury yields.
The euro also extended its bounce following a report of potential changes to European Central Bank policy.
But the pound marked fresh, three-decade lows amid concerns that Britain’s separation from the European Union could be rocky and have grave economic consequences.
The dollar index stood at 95.989, 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 by their euro zone counterparts.
The euro rose 0.2 percent to $1.1222, extending the bounce from the previous day when it swung widely on speculation over ECB monetary policy.
The common currency had slid on Tuesday to a low $1.1138 against the bullish dollar before climbing back to a peak $1.1239. It climbed along with a rise in euro zone debt yields in response to a Bloomberg report of a ECB plan to taper its asset-purchase programme.
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.
“It remains to be seen if the report can be substantiated. But the mood in the market appears to have shifted with the mention of ECB tapering as it would spell an end to monetary policy divergence,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
The euro had been kept relatively weak against the dollar as the ECB has been easing extensively while the Fed was poised to raise rates.
“The ECB may now taper, the Bank of Japan appears less aggressive about easing and the Fed won’t be hiking rates every quarter. It means currencies will be grappling to find a clear trend going forward.”
The dollar was little changed at 102.880 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 struggled near a 31-year trough of $1.2720 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.
For immediate cues the market will look to comments due later in the day from ECB Governing Council member Ewald Nowotny, Minneapolis Fed President Neel Kashkari and Richmond Fed President Lacker.
Upcoming data on Wednesday include the U.S. ADP employment report and the Institute for Supply Management’s (ISM) index of non-manufacturing activity. (Editing by Shri Navaratnam and Kim Coghill)