Dollar idles before US data, yen struggles

TOKYO, Dec 21 (Reuters) The dollar steadied on Thursday ahead of US data on growth and manufacturing that could help the market to better assess whether the Federal Reserve will cut interest rates next year.

The yen hovered near a record low against the euro and a six-week trough versus the dollar, and traded around near-decade lows against sterling and the Australian dollar due to a growing view that the Bank of Japan may skip raising rates to 0.5 percent in January.

Trading was quiet as the year winds down, a period when movements are often dominated by position squaring before book closings. This could make further significant gains in the dollar tricky.

''We've seen a lot of short dollar positions covered since the beginning of the month, when strong U.S. data helped to cut expectations of a Fed rate cut,'' said Takehiko Jimbo, a forex trader at Mitsubishi UFJ Trust and Banking.

''But at the moment there's not a lot of factors to take the dollar much higher.'' Market participants sat tight before the final reading of U.S. third-quarter gross domestic product at 1330 GMT and the Philadelphia Federal Reserve's manufacturing survey for December due at 1700 GMT.

In early Tokyo trading, the euro was little changed on the day at $1.3180.

The U.S. currency edged down to 118.35 yen but stayed in sight of a six-week high of 118.52 yen hit in the previous session.

The single European currency hovered around 156 yen after touching a record high of 156.39 yen on Wednesday.

The yen continued to feel the sting from comments by BOJ Governor Toshihiko Fukui earlier in the week that Japanese consumption and prices had weakened in past months, which market players took as a sign the central bank may hold off raising rates next month.

Such a view pushed sterling to an eight-year high against the Japanese currency in the previous session, while the Australian dollar touched its highest level against the yen since 1997.

The yen was unfazed after the Reuters Tankan survey of business sentiment among leading manufacturers produced a headline diffusion index of plus 34 in December, unchanged for the third straight month as optimism on the economy remained upbeat.

The poll showed that the reading was forecast to rise to plus 38 in March, which would be just shy of the plus 39 marked in June this year -- the highest since the survey began in 1998.

REUTERS PKS RN0637