* Signs of easing tensions drive risk rally
* Encouraging U.S. jobs data halts flight from dollar
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tom Westbrook
SINGAPORE, Sept 6 (Reuters) - Encouraging U.S. economic data gave the dollar an edge over its peers on Friday, arresting a recent flight from the greenback while also supporting Asian currencies as investors toned down recent gloom over the global economy.
Separate surveys suggested the world's largest economy is in better shape than investors had feared. U.S. service sector activity accelerated in August and private employers boosted hiring beyond expectations.
It contributed to a broad risk-on shift in money, bond and stock markets stoked by news that China-U.S. trade talks would resume next month, and supported the dollar.
"Stronger than forecast employment, factory orders and productivity numbers contradicted the recent 'slowing U.S. economy' narrative," said Michael McCarthy, chief strategist at brokerage CMC Markets in Sydney.
The dollar recouped some losses against the Australian and New Zealand dollars and against a basket of currencies clambered off a one-week low to hold flat around 98.419.
Traders now await the government's monthly payrolls report due at 1230 GMT on Friday for the next snapshot on the labour market's health.
"Investors are now hoping they can take this week's positivity over the finishing line, so fingers crossed the August U.S. payroll report...doesn't throw a damp towel on the proceedings," said Stephen Innes, Asia Pacific Market Strategist at AxiTrader.
Other factors supporting risk sentiment were a potential breakthrough in the Hong Kong political crisis and reduced chances of Britain crashing out of the European Union on Oct. 31 without a deal.
The pound rose to its highest level against the dollar in more than a month and held most of those gains to trade around $1.2326 in Asian hours.
That was in spite of more political chaos in Britain, as Prime Minister Boris Johnson's plan to kick off what is in effect an election and a Brexit campaign was overshadowed on Thursday when his younger brother quit the government.
The euro was steady at $1.1031 at 0030 GMT. The yuan gained overnight and held in morning offshore trade around 7.1382 per dollar. The trade-exposed South Korean won hit a month high of 1,198.40 per dollar.
Sentiment has been skittish, however, since the Brexit project remains up in the air and previous progress on U.S.-China trade negotiations has failed in the past.
The yen, which was sold to a one-month low of 107.22 per dollar on Thursday, bounced a little to 106.98, a signal some caution remains.
"These moves may prove to be short term rather than the start of a fresh cycle," said Nick Twidale, director of Sydney-based brokerage XChainge.
"Both the major geo-political issues that seem to have turned over the last few days have a large degree of uncertainty associated with them over the medium, let alone long term," he said, referring to Brexit and U.S-China trade talks.
"We've seen a lot of activity on the frequent flyer accounts of both the Chinese and US trade negotiation teams before which has resulted in little in the way of progress." (Reporting by Tom Westbrook; Editing by Sam Holmes)