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* Dollar steadies after drop, index down about 0.8 pct for week
* Dollar at 116.10 yen, euro close to $1.06, third week of gains
* Sterling fades after 2 up days, peso holds intervention gains
* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh
By Marc Jones
LONDON, Jan 6 (Reuters) - The dollar clawed back ground on Friday but was heading for a second straight weekly loss, having tumbled the previous day on a rare piece of poor U.S. data and apparent action by Chinese authorities to shore up the yuan.
Most currencies were range trading ahead of U.S. non-farm payrolls due later in the session, but the dollar was 0.7 percent higher against the yen at 116.10 and nudged the euro down to $1.0590 by 0915 GMT.
Sterling was treading water ahead of a decision expected over the next week on the role of parliament in soon-to-start Brexit negotiations, while Mexico's peso steadied having surged after currency intervention on Thursday.
"It's a bit quieter following the moves yesterday and going into the payrolls it will take a fairly strong print especially on the earnings side to reinvigorate the stalled dollar rally," said Credit Agricole head of G10 FX strategy Valentin Marinov.
"My hunch is that investors are just waiting for the Trump inauguration."
The dollar index, which measures the greenback against six of the world's top currencies, was at 101.62 having set a 14-year high of 103.820 three days ago on a seeming resumption of the dollar-bullish 'Trump trade'.
But it crumpled on Thursday following lacklustre U.S. employment data, having already been buffeted by a surge in the Chinese yuan as Beijing made moves to shake out large bets against the currency.
There was more action overnight as borrowing rates for the offshore yuan or CNH leaped to 61 percent, their highest in a year, and the CNH headed for its biggest weekly gains since it was introduced in 2010 as China's latest attempts to squeeze speculators bore fruit.
All eyes on Friday were on non-farm payrolls, expected to have increased by 178,000 jobs last month after a similar rise in November, according to a Reuters survey of economists.
The U.S. unemployment rate, though, is forecast to tick up to 4.7 percent from a nine-year low of 4.6 percent in November.
"The global economy looks to be in better shape compared to a year ago so the (current) risk-off trend could be limited," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.
"But China-related headlines appear to have given participants a chance to adjust positions which had excessively favoured the dollar."
The Australian dollar nudged down 0.2 percent to $0.7327 after gaining 0.7 percent overnight, when it touched a three-week high of $0.7356. It received some support as data showed Australia posted its first trade surplus in almost three years in November.
The New Zealand dollar followed, inching down 0.1 percent to $0.7017 after climbing to a three-week peak of $0.7040.
For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
Reporting by Marc Jones; editing by John Stonestreet