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TOKYO, Sep 27 (Reuters) The dollar steadied on Wednesday, keeping most gains made on strong U.S. consumer confidence data that softened expectations a slowing economy may lead the Federal Reserve to cut interest rates.

The U.S. currency was supported after the data suggested the market may have gotten ahead of itself in girding for a possible trimming of rates in coming months, dealers said.

''Since last week, the market has begun to factor in a rate cut by the Fed by year end, so now we're seeing an adjustment of that,'' said a trader at a Japanese bank.

''Data later this week and next week should give us a better idea of how rates will move in the near- to mid-term.'' Market participants said they would focus on the Fed's favoured inflation gauge, the Personal Consumption Expenditure index, due on Friday to gauge the outlook for rates.

Before that, figures for durable goods and new home sales in August due later on Wednesday will offer insight to whether economic growth is slowing, as will the final reading of growth in the second quarter on Thursday.

By 0535 GMT, the dollar was at 117.05 yen, down a touch on the day with the help of selling by Japanese exporters.

The dollar has found a footing since falling to a two-week low of 116.08 yen last week, when a surprisingly weak manufacturing survey cranked up speculation that a slowing U.S. economy could prompt the Fed to cut rates next year.

The euro hovered at $1.2690 after falling to around $1.2660 on Tuesday.

The single European currency was little changed at 148.55 yen.

The outlook for Asian currencies got a boost as China's yuan hit a post-revaluation peak of 7.9025 per dollar amid speculation that Beijing, after talks with Washington, might be more open to letting the yuan's pace of appreciation to quicken.

The yuan has climbed 0.53 percent since Monday last week, its biggest rise in any seven-day stretch of trading since it was depegged from the dollar in July 2005.

RATES DOG YEN The yen has benefited from short covering in the past week or so, helping to pull the currency away from a record low against the euro hit late last month and a five-month trough versus the dollar earlier in September.

But some traders argued the short-covering rally was about done, and that the rate gap with other currencies would continue to dog the yen.

''The overall yen selling trend is far from over,'' said Hiroshi Yoshida, forex manager at Shinkin Central Bank, adding that he expected the dollar to climb into the 118 yen region in the near term.

With U.S rates at 5.25 percent and those in the euro zone expected to climb from the current 3 percent, the market is confident the currencies of both regions will continue to overshadow the low-yielding yen.

The Bank of Japan is expected to raise rates slowly after lifting them in July for the first time in six years to 0.25 percent.

Dealers were awaiting Japanese data on consumer prices and industrial output due on Friday for a better idea of when the Bank of Japan will next bump up rates.

Those figures will lead in to the central bank's much-awaited tankan survey of business sentiment due on Monday.

Japan's top financial diplomat, Hiroshi Watanabe, said the quarterly tankan would likely show ''relatively strong results''.

But he added that consumer price growth was not robust enough to convince the government that Japan's economy has fully recovered.

REUTERS SBA VC1155