* Stock markets cautious ahead of U.S. nonfarm payrolls report
* U.S. stocks seen higher at open
* Euro up vs dollar, yen and sterling after ECB leaves rates on hold
By Richard Hubbard
LONDON, Oct 4 (Reuters) - The euro edged higher against most major currencies on Thursday, helped by the European Central bank's decision to keep interest rates unchanged, while signs of an improving jobs market in the United States supported equity markets.
But market moves were choppy as investors turned cautious ahead of Friday's key U.S. nonfarm payrolls report.
The ECB's decision was widely expected and the market was more focused on what ECB president Mario Draghi will say in his post-meeting news conference about Spain and the prospect that it will trigger the bank's new bond buying programme.
The euro rose 0.4 percent to $1.2968 after the decision was announced, having earlier touched two-week highs against the Japanese yen, British pound and Swiss franc.
"What is key for euro/dollar going forward is going to be Spain," said Michael Sneyd, FX strategist at BNP Paribas.
European sources have told Reuters that euro zone leaders are considering helping Spain by providing insurance to those who buy its government bonds to minimise the cost of any bailout.
That news helped prompt some selling in safe-haven German bonds but had little impact on Spanish bonds, with 10-year yields around 6 basis points higher on the day at 5.87 percent.
Earlier the strong view that Spain will ultimately seek a full bailout helped Madrid sell 4 billion euros ($5.16 billion) in shorter-dated government bonds.
Investors bid for twice the amount on offer for the three-year bonds in the Spanish auction, reflecting high expectations of ECB support, though Madrid had to pay slightly more than at a similar auction a month ago.
The average yield on the paper was 3.956 percent versus an average this year of 3.825 percent.
"There is a natural demand, given the expectation that at some point Spain will request a sovereign bailout," RIA Capital Markets bond strategist Nick Stamenkovic.
Meanwhile U.S. stock index futures pointed to a higher start on Wall Street on Thursday as economic data added to hopes of an improvement in the monthly payrolls report.
The number of Americans filing new claims for unemployment benefits rose less than expected last week, according to the latest weekly data, adding to a modest signs of improvement.
"The labour market is improving, but it is not really gathering direction for better or worse. It is still just plodding along," said Sean Incremona, economist at 4Cast Ltd in New York.
Europe's FTSEurofirst 300 index was barely changed after the U.S. jobless claims data.
Modest gains in Asia earlier also contributed to a slight gain in the MSCI world equity index, but investors everywhere are cautious about extending a rally begun in September until they see confirmation of a better outlook.
"The market is caught between earnings momentum which has turned heavily negative during the third quarter, a significant policy response to the slowdown in global growth ... and now there's a debate about the effectiveness of the policy actions that they've taken," said Darren Winder, equity strategist at Oriel Securities.
Markets also got a slight lift from a gain in U.S. stock futures after an early U.S. poll found 67 percent of registered voters surveyed thought Republican candidate Mitt Romney, seen as pro-business, won the first widely watched election debate with President Barack Obama.
The improving U.S. outlook was also supporting demand in commodities markets, with gold gaining for a fourth day and copper rallying , while Brent crude oil for November was up $1.57 a barrel.
However, rising geo-political concerns emanating from the Middle East is keep a cap on the gains, with rising social unrest in Iran and a growing dispute between Turkey and Syria adding to the regional tensions.