* Dollar initially helped by U.S. jobs report
* Jobs data bolsters prospect of Fed rate hike in Sept.
* Pressure on dollar longs rises ahead of weekend (Updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, Aug 7 (Reuters) - The dollar slipped against a basket of currencies after touching near a four-month high on Friday, as investors pared bullish bets that a solid U.S. jobs report had pushed the Federal Reserve closer to raising interest rates this year.
A slide in longer-dated bond yields also weighed on the greenback, suggesting that because inflation remained low, the pace of the Fed's rate increases would be slow and the U.S. currency's upside potential likely limited.
But the outlook for the dollar remained generally positive on the prospect of higher rates, with most analysts expecting the central bank to begin the monetary tightening at its September policy-setting meeting.
The dollar earlier rose to a two-month peak versus the yen and near a five-month high against the Swiss franc, but by midday also had surrendered those gains.
"With the U.S. dollar rising well ahead of yield differentials, the chances are that a lot of the hawkish news is already in the price, which limits scope for further gains after the September FOMC (Federal Open Market Committee)," said Lena Komileva, chief economist and director at G+ Economics in London.
Analysts said reversals in the dollar's price action are normal when highly-anticipated U.S. economic data such as the non-farm payrolls report is released just before a weekend.
On Friday, data showed U.S. nonfarm payrolls increased 215,000 last month, slightly lower than market expectations for a rise of 223,000 jobs but still seen as consistent with a strong labor market. Upward revisions to the previous two months and a gain in average hourly earnings also were viewed positively by markets.
Following the jobs report, the swaps market was pricing in a 52 percent chance of a September rate hike, up from 47 percent before the data's release.
Christopher Vecchio, currency analyst at DailyFX in New York, said, however, that "given low headline inflation readings and a lack of break-neck speed in the labor market, the first hike in September (or October or December for that matter) is likely to be an isolated event."
In late trading, the dollar index was down 0.2 percent at 97.650 .DXY . It earlier rose as high 98.334, its highest level since April 23.
The dollar touched two-month peaks against the yen, rising above 125 yen, but was last down 0.5 percent at 124.13 yen JPY= .
The euro, meanwhile, was up 0.4 percent at $1.0966 EUR= .
Against the Swiss franc, the dollar last traded up 0.2 percent at 0.9829 franc CHF= . It earlier rose to its highest level since March 20.