* U.S. employers add 156,000 jobs in August
* December Fed rate increase still seen as possible
* Dollar index set for small weekly gain
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Sam Forgione
NEW YORK, Sept 1 (Reuters) - The U.S. dollar edged higher against a basket of major rivals on Friday after U.S. jobs data was seen as decent enough to support the possibility of another interest rate increase from the Federal Reserve this year.
Traders initally sold the dollar in a knee-jerk reaction to Labor Department data showing nonfarm payrolls increased by 156,000 last month, below expectations of economists polled by Reuters for a gain of 180,000.
A one-tenth of a percentage point uptick in the unemployment rate to 4.4 percent and tepid wage growth also briefly sent the dollar lower.
The dollar reversed its losses and pushed higher, however, with the euro last down 0.4 percent at $1.1866 after briefly hitting a session high of $1.1979. The dollar index, which measures the greenback against a basket of six major currencies, was last up 0.1 percent at 92.801 after initially plunging 0.5 percent.
“If the markets are discounting a December (Fed rate hike) just on the back of this, it’s probably premature," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.
The dollar also recovered since it was oversold heading into the employment report, said Alfonso Esparza, senior currency analyst at Oanda in Toronto.
The dollar index is coming off its sixth consecutive monthly decline, although August’s drop of 0.2 percent was the smallest since the streak began in March. Through August, the index had declined 9.3 percent, the worst first eight months to a year since 1986.
The euro hit a more than 2-1/2-year high on Tuesday of $1.2069 after European Central Bank President Mario Draghi made no mention of the euro's strength at a gathering of central bankers last Friday. The dollar index was set to gain just 0.1 percent for the week after posting its biggest percentage decline in more than a month, of 0.7 percent, last week.
"The (Fed) rate hike is still sort of a question mark, but (Friday's jobs data) wasn’t that big a miss to take it totally off the table for the rest of the year," said Oanda's Esparza.
The dollar was last up 0.2 percent against the yen at 110.21 yen after slumping to a session low of 109.57 yen just after the jobs data. The dollar was set to post its biggest weekly gain against the yen since early July, of about 0.8 percent.
Reporting by Sam Forgione; Editing by Dan Grebler and Chizu Nomiyama