LONDON, Nov 2 (Reuters) - Sterling edged up towards fresh 26-year highs versus the dollar in choppy trading on Friday, after a strong U.S. jobs report encouraged investors to go back into risky carry trades.

The pound was also supported as expectations of a Bank of England interest rate cut next week diminished despite lower than expected British pay settlement data.

Sterling was also unaffected by market talk of funding worries in the wake of the credit crunch. Shares in Barclays fell as much as 8 percent amid speculation the bank is telling analysts to trim profit forecasts.

"You've got general low risk appetite and heightened risk aversion, but I don't think that is powerful enough to overcome a reappraisal of where UK rates are going," said Gavin Friend, head of FX strategy at Commerzbank.

The pound has been supported this week by comments from policymakers implying that an interest rate cut from the Bank of England is not imminent.

At 1519 GMT, the pound was trading at $2.0829, up 0.13 percent on the day <GBP=> and about half a cent below 26-year highs set on Thursday.

Against the yen, the pound was up 0.31 percent at 238.75 yen, and the euro was trading at 69.56 pence, up 0.33 percent.

The high-yielding pound benefited as a pick-up in risk appetite encourage investors to re-enter carry trades, funded by cheap borrowing in currencies like the yen.

Median British pay settlements fell to 3.2 percent in the three months to October, the lowest figure in a year, and a survey published on Wednesday showed Britain's manufacturing sector grew at its slowest pace this year in October.

British industrial and manufacturing figures are due on Monday at 0930 GMT. The highlight of the week though will be the BoE rate decision on Thursday.

Source supplied by: Reuters