* Dollar/yen drops after Nikkei hits 7-month low
* Euro broadly lower, hits 4-month trough vs yen on dovish ECB
* U.S. nonfarm payrolls next key focus for markets
* Aussie falls to new 6-1/2-year low (Updates dollar’s moves)
By Shinichi Saoshiro and Ian Chua
TOKYO/SYDNEY, Sept 4 (Reuters) - The dollar sank against the yen on Friday as the safe-haven Japanese currency gathered bids after Tokyo shares fell to a seven-month low in nervous trading ahead of U.S. jobs data due later in the day.
The greenback was down 0.7 percent to 119.22 yen. The U.S currency was on track for a 2 percent loss this week, during which it has been pummelled by bouts of global risk aversion that favoured the yen and euro.
The dollar index lost 0.2 percent to 96.241.
The yen also surged against the euro, which came under broad pressure after the European Central Bank gave a sobering assessment of the euro zone economy and suggested it may have to beef up its already massive stimulus programme.
The euro was down 0.6 percent at 132.73 yen after skidding to a four-month low of 132.62.
For the coming August U.S. non-farm payrolls, the market consensus is for an increase of 220,000 jobs.
“Any boost for the dollar from a solid jobs report could be limited as the recent financial market turmoil has strengthened expectations that the Fed will delay hiking rates,” said Masafumi Yamamoto, a senior strategist at Monex in Tokyo.
“And if the jobs report is very strong and does raise prospects of a September hike, that could be perceived as negative for the global markets amid fears of slowing Chinese growth and spark off risk aversion. The dollar could even end up being sold against the yen.”
The euro initially slid against the dollar, reaching $1.1087 from levels above $1.1200, but then strengthened 0.1 percent to $1.1135. It was on course for a 0.5 percent weekly loss.
For the first time, ECB President Mario Draghi said explicitly the bank’s bond-buying programme may run beyond September 2016 and that its size and composition may be adjusted.
The ECB warned that growth would suffer from fading momentum in emerging markets, particularly China, and falling oil prices could drag the 19-member euro zone back into deflation in coming months. In a widely expected decision, it left policy unchanged for now.
“Bottom line: the risk the ECB’s current asset purchase program is extended beyond September 2016 is rising which should continue to weigh on euro and euro zone short-term swap rates,” Elias Haddad, senior currency strategist at Commonwealth Bank wrote in a note to clients.
The ECB’s dovish stance helped inject some life into European stocks, but failed to lift risk appetite in general, resulting in a half-hearted performance from Wall Street and a tumble in Tokyo.
Japan’s Nikkei was down 1.7 percent. Earlier, it was off as much as 3.1 percent, hitting its lowest since early February.
Commodity currencies like the Canadian and Australian dollars sagged against the greenback in the wake of easing crude oil prices. The Aussie was down 0.8 percent at $0.6963 after stooping to a new 6-1/2 year trough of $0.6959.
Investors have been aggressive sellers of the Aussie in recent weeks, in large part due to heightened concerns about a hard landing for the Chinese economy. China is Australia’s top export market.
Chinese markets resume trade on Monday, while U.S. markets will be shut then for Labor Day. (Editing by Richard Borsuk)