* Watching for FX diversification comments ahead of G8
* RBA holds rates at record low 3 pct, sees scope to ease
* Australian dollar edges up on short-covering
By Kaori Kaneko
TOKYO, July 7 (Reuters) - The yen edged up against the euro
and sterling on Tuesday, as traders fretted that optimism about
the global economy's recovery prospects and a risk asset rally
in the past few months may have been overdone.
The dollar was steady after hitting a five-week low against
the yen on Monday in the wake of last week's bleak U.S.
employment data.
"The market environment now is one of investors reducing
risk betting but it has not fully returned to risk aversion.
It's still in a phase of correcting excessive optimism over the
economy recovery seen previously," said Akira Takeuchi, a
manager at Chuo Mitsui Trust and Banking.
"The U.S. has had a mixture of positive and negative
economic data, which needs to be examined closely. But the
market is now prone to react to weak figures," he said.
The yen has gained sharply against the euro, sterling and
the Australian dollar in the past few sessions, hitting its
highest in five weeks against the pound on Monday at 152.98 yen
<GBPJPY=R> and a two-week high at 131.73 per euro <EURJPY=R>.
The yen crosses have fallen since early June, after rallying
from January to multimonth highs, as the sentiment about global
recovery prospects that had driven them up has deteriorated.
The Australian dollar has fallen about 5.5 percent from an
eight-month peak at 80.43 yen <AUDJPY=R> hit in June and the
euro has shed more than 4 percent.
Sterling dipped 0.1 percent to 155.05 yen compared with late
U.S. trading on Monday, and the euro fell 0.1 percent to 133.20
yen.
But the Australian dollar edged up against the dollar and
the yen.
Australia's central bank left its key cash rate at a record
low of 3.0 percent on Tuesday in a widely expected decision, and
left the door open to further easing if an anticipated recovery
fails to materialise. []
The Australian dollar dipped initially after the RBA
decision, but that decline proved short-lived, and it later rose
to its intraday highs.
The Aussie rose 0.2 percent to $0.7975 <AUD=D4> and was 0.2
percent higher against the yen at 76.02 yen <AUDJPY=R>.
"People who had gone short the Australian dollar probably
bought it back," said Yuichi Hojo, director of FX distribution
at UBS in Tokyo, adding that the Australian dollar likely fell
initially after the central bank kept open the possibility of
further monetary easing.
The dollar was little changed at 95.33 yen <JPY=> from late
U.S. trade on Monday, when it hit a five-week low of 94.66 yen
on trading platform EBS.
The greenback has also been in a correction phase after
hitting a six-month high against the yen at 101.45 yen in April
but has been stuck in a broad range of roughly 93.50-100.00 yen
since then.
"The market lacks a decisive theme," said Kazuyuki Takami,
senior manager at Bank of Tokyo-Mitsubishi UFJ.
"The economy has escaped from its worst period but it is
unclear whether it will be on a recovery track or it will sink
into a double-dip recession," he said.
The market was watching for any comments in the debate on
the dollar's role as the world's reserve currency before a
meeting of leaders of the Group of Eight industrial nations and
leading developing nations on July 8-10 in Italy. []
(Additional reporting by Masayuki Kitano and Charlotte Cooper;
Editing by Chris Gallagher)
