SYDNEY, Jan 2 The dollar was slightly softer against the major currencies in holiday-hit

SYDNEY, Jan 2 (Reuters) The dollar was slightly softer against the major currencies in holiday-hit trade on Tuesday, while the euro held near record highs against a subdued yen.

Early Asian trading was exceptionally thin with Tokyo and New Zealand on holiday. Also, equity markets in the United states will be closed on Tuesday to commemorate the death of former President Gerald Ford, while Treasury and forex trading will wind-down early.

One dollar bought 118.94 yen , off from 119.01 late in New York on Friday and short of recent 119.21 highs. Against a basket of six major currencies <.dxy>, the dollar was a shade softer at 83.60 after finishing at 83.72 on Friday.

The euro edged up on the dollar to $1.3208 , having gained more than 11 percent over the whole of 2006.

The euro did even better against the yen last year, rising almost 13 percent to touch a record high around 157.19 yen on Friday. Early on Tuesday, the euro was quoted at 157.11 yen.

The Japanese currency's decline was fuelled in large part by the carry trade, as investors borrowed yen at low Japanese rates to invest in higher-yielding currencies.

The yen's slide gathered pace in recent weeks on speculation the Bank of Japan would delay another rise in interest rates for fear of destabilising the country's long-awaited economic recovery. In contrast, the market fully expects the European Central Bank to continue to tighten policy.

''Investors have become comfortable again with using the yen as a funding vehicle,'' said John Kyriakopoulos, a forex strategist at National Australia Bank.

''That's been clearly seen in the Aussie and Kiwi crosses,'' he added. The Australian dollar hit nine-year highs on the yen around 94.18 yen last week.

Kyriakopoulos noted there had been some Japanese media reports suggesting the BOJ would consider a hike at its policy meeting this month. Both the Yomiuri newspaper and the Jiji new agency reported the central bank would make a final decision at its policy-setting meeting on Jan. 17-18.

Still, the Yomiuri also reported a hike could be delayed until February or later, depending on ''adjustments'' between the central bank and the government and ruling parties.

''BOJ officials don't sound like they are in any hurry to hike,'' said Kyriakopoulos. ''Meanwhile, the market has had to push back the timing of any U.S. rate cut given the strength of recent data on home sales and consumer confidence, and that's helped the dollar.'' Financial markets are still pricing in at least one rate cut for the United States in 2007, but now not until the second half of the year.

The minutes of the Federal Reserve's December policy meeting may help refine the outlook for rates. The minutes were due to be released on Tuesday but have been put back to Wednesday due to the national holiday.

The ISM reading on manufacturing is also due on Wednesday along with vehicle sales, while Friday has the December payrolls report.

Reuters DH VP0455