* Traders await clarity on Spanish bailout
* Potential for euro to rally if Madrid requests aid
* Yen capped after U.S. jobless claims data, Softbank news
By Wanfeng Zhou
NEW YORK, Oct 12 (Reuters) - The euro edged higher against the dollar and yen on Friday but remained well within its recent range as traders awaited clarity on when and whether heavily indebted Spain would request a bailout to shore up its finances.
Buying by sovereign investors lifted the single currency earlier in global trade, but the euro looked likely to struggle for traction until answers emerged over a potential Spanish aid request.
A bailout request is widely seen as positive for the euro as it would remove another layer of uncertainty in financial markets and activate the European Central Bank's bond-buying program aimed at lowering borrowing costs for troubled euro zone economies.
The Spanish economy minister said on Friday a European bond-buying plan was fully ready for use and that there was no political resistance to a bailout request from within the euro zone.
"There seems to be more optimism the next hurdle will be knocked over and that hurdle is Spain," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co LLC.
That's "why you're seeing the dollar index lower, in response to risk-on, and that's translating into a much stronger euro," he said.
The euro was at $1.2945, up 0.2 percent on the day but down 0.6 percent week-on-week. It has traded in a tight range roughly between $1.28 and $1.3170 since mid-September.
The euro hit a 10-day low at $1.2824 on Thursday, but found good support at its 200-day moving average at $1.2823.
It recovered after the International Monetary Fund said Europe's heavily indebted countries should be given more time to cut deficits.
Ian Stannard, head of European FX strategy at Morgan Stanley, said he expected a stronger euro in coming months given the likely boost from a Spanish aid request.
"The euro is positioned to extend its rebound, and we expect a move back up to September levels from 1.3170 to 1.34 for the year-end," he said.
Against the yen, the euro rose 0.1 percent to 101.38 yen . The dollar hit a high of 78.53 yen, recovering from Thursday's 10-day low against the Japanese currency of 77.92 yen. It was last little changed at 78.31 yen.
Data showing a sharp drop in initial U.S. jobless claims last week and news that Japanese wireless service provider Softbank Corp may buy a majority stake in Sprint Nextel , in a deal potentially worth at least 1 trillion yen ($12.74 billion), helped lift the dollar against the yen, traders said.
Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, said the potential Softbank deal was so large that currency markets could be tapped for part of the financing.
The dollar showed little reaction to U.S. data showing consumer sentiment unexpectedly rose in October to its highest in five years, while producer prices climbed more than expected in September.
The Australian dollar dipped 0.4 percent to $1.0224, retreating from the previous session's one-week high of 1.0294.
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