* Euro hits two-week highs vs USD & yen
* ECB says ready to buy bonds
* BOJ, U.S. non-farm payrolls next in focus
By Ian Chua
SYDNEY, Oct 5 (Reuters) - The euro started Friday's trading session on a solid footing, having rallied to two-week highs after the European Central Bank said it was ready to buy bonds of troubled euro zone members and that conditions to trigger the programme need not be punitive.
The single currency traded at $1.3020, after rising some 1 percent to a high of $1.3032, moving within sight of the Sept. 17 peak of 1.3173. Against the yen, it bought 102.23 , reaching highs not seen since Sept. 20.
But ECB President Mario Draghi, which left interest rates unchanged at a record low 0.75 percent, offered no clues as to when Spain might make a formal aid request that would activate the programme.
Markets were also cheered after Spain saw its borrowing costs mostly fall at a bond auction, as investors stomached the issue in the belief a rescue package will come soon.
Christopher Vecchio, currency analyst at DailyFX, said the Spanish 2013 budget announced recently should satisfy the ECB, European Commission and the IMF and pave the way for a full sovereign bailout.
"This is the most significant event expected to take place over the next week or so and has the potential to be a major positive catalyst for the EURUSD and the S&P 500."
A resurgent euro prompted the dollar index to beat a hasty retreat. It skidded to a two-week low of 79.272, copping a fall of 0.7 percent on Thursday.
But the dollar managed to hold onto most of its recent gains against the yen, buying 78.50 after rising as high as 78.72. It has gained nearly 1.5 percent from a low of 77.435 plumbed on Sept. 28.
All eyes are on the outcome of the Bank of Japan's Oct 4-5 policy meeting due between 0330-0530 GMT.
The BOJ is under heavy political pressure to ease again, following on from last month's move, which saw the central bank expand its asset-buying programme to spur a stronger recovery in the export-driven economy.
Still, expectations are low that the BOJ would actually take any action, particularly given the more important rate review on Oct. 30, when it is likely to cut its long-term economic and price forecasts.
Japanese officials have been fretting about the strength of the yen, which remained resilient despite the BOJ's easing last month.
Part of the reason is that the Federal Reserve's own stimulus programme has made the greenback unattractive for many investors. Minutes of the Fed's September meeting, released on Thursday, showed broad support for the open-ended bond-buying programme.
With the U.S. jobs market a target for the Fed, markets will be closely watching the September figures due at 1230 GMT. Analysts expect the economy to have created 113,000 jobs, and the jobless rate to creep up to 8.2 percent from 8.1 percent, the median forecasts of a Reuters poll showed.
The pullback in the greenback helped the Australian dollar regain some lost ground. It rose to $1.0244, pulling away from a one-month trough of $1.0182 plumbed Thursday.
The Aussie dollar is still on track to post a fall of more than 1 percent in a week that saw the Reserve Bank of Australia cut its cash rate by 25 basis points to a three-year low of 3.25 percent and leave the door open to more easing.