* Upbeat employment data support dollar vs yen
* Japan CPI as expected, muted reaction from dollar/yen
* Euro off 8-mth low but longer-term view still bearish
TOKYO, July 25 (Reuters) - The dollar held gains versus the yen on Friday and the euro stood steady after rebounding from an eight-month low against the greenback as data painted a brighter picture of the U.S. and eurozone economies.
The dollar was little changed at 101.79 after spiking more than 0.3 percent overnight to a two-week high of 101.86 as data that showed weekly U.S. filings for first-time jobless benefits fell to the lowest since early 2006.
The greenback, which has been closely correlated to U.S. debt yields, was buoyed after Treasury bond yields rose in wake of the upbeat employment indicator. It was poised to gain about 0.4 percent on the week against the Japanese currency.
The yen's reaction to Japanese consumer prices data that was in line with forecasts was muted and did not do much to stir expectations for further monetary easing by the Bank of Japan. Core consumer prices rose 3.3 percent in June from a year earlier, before the effect of April's sales tax hike is stripped out, matching forecasts.
The euro stood steady at $1.3464, having rebounded on Thursday from an eight-month trough of $1.3438 after stronger-than-expected German and French business activity reports slightly tempered bearish views towards the eurozone economy faced with possible fallout from any tougher sanctions on Russia.
Still, the euro was on track to lose more than 0.4 percent on the week against the dollar with many market participants retaining a bearish longer-term view for the common currency.
Any targeting of Russian banks by the European Union or any other sanctions would likely weigh on a fragile recovery, stoking bets of an even looser policy from the European Central Bank. The ECB cut interest rates in June and has left the door open to further monetary easing, which would hurt the euro.
Currency strategists at Morgan Stanley said key pillars of support for the euro - foreign buying of eurozone equities and peripheral bonds and diversification into the currency by central banks - were crumbling and likely to keep pushing the euro lower in the long term.
"The prospect of additional sanctions against Russia is also a potential negative factor for the euro. We do not see the euro as a safe haven from recent developments in Russia/Ukraine, especially given Europe's high level of exposure to the region," they said in a report to clients.
Sterling traded at $1.6990 after pulling back overnight from a one-month low of $1.6967 after weaker-than-expected retail sales numbers cast more doubt on the case for a swift rise in interest rates.
Market focus was on Britain's second quarter GDP data due at 0830 GMT.
The British economy is forecast to have grown 0.8 percent from the previous quarter, with any upside surprise expected to further support sterling's bounce from the one-month trough.
(Editing by Eric Meijer)