NEW YORK - The U.S. dollar edged higher against a basket of currencies on Friday, after a better-than-expected U.S. employment report pointed to a tight labor market that could lead the Federal Reserve going with interest rate hikes.

Nonfarm payrolls increased by 390,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls increasing by 325,000 jobs in May.

The U.S. Dollar Currency Index, which tracks the greenback against six other major currencies, was 0.2% higher at 101.91, after rising as high as 102.19 following the jobs report.

The better-than-anticipated job gain is another sign the economy is still strong, while wage growth is beginning to moderate amid a rebound in the labor force, Michael Pearce, a senior U.S. economist at Capital Economics, said in a note.

"With wage growth still running well above rates that are consistent with the Fed’s 2% inflation target, however, that won’t stop the Fed from continuing to raise rates by 50 basis points at the next meeting or two," Pearce said.

The Fed has raised interest rates by three quarters of a percentage point this year, and most Fed policymakers back raising interest rates another half of a percentage point at each of their next two meetings.

Calling high inflation the U.S. central bank's "number one challenge," Fed Vice Chair Lael Brainard on Thursday said she backs at least a couple more half-percentage-point interest rate hikes, with more on tap if price pressures fail to ease.

Investors have mixed views on the greenback, which is still close to two-decade highs against a basket of peers.

George Saravelos, global head of forex research at Deutsche Bank, said the dollar is "pricing a safe-haven risk premium that is so extreme it rarely has persisted over time and is now in the process of unwinding."

Bullish analysts argue that the Fed's tightening cycle is based on a sturdier growth story than Europe's, especially after the Russian oil embargo, which might hurt the euro zone economy.

The dollar rose 0.5% to a more than three-week high of 130.46 yen, with the Japanese currency not far from the two-decade low touched in May as the Bank of Japan (BoJ) stuck to its super-low interest rate policy stance.

BoJ Governor Haruhiko Kuroda - who has repeatedly said the bank won't roll back its massive monetary stimulus as the recent rise in inflation was driven mostly by raw commodity costs and likely temporary - said on Friday it was undesirable for prices to rise too much when household income growth remains weak.

In cryptocurrencies, bitcoin slipped 2.5% to $29,676.05, as the world's largest digital currency by market value continued to struggle to overcome a bout of selling pressure that has taken it below the $30,000 level.

(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis)