SYDNEY, Jan 3 The euro was consolidating healthy gains on the yen and U.S. dollar on Wedn

SYDNEY, Jan 3 (Reuters) The euro was consolidating healthy gains on the yen and U.S. dollar on Wednesday, while investors' lust for yield kept sterling and the Aussie dollar firm.

The euro was holding firm at $1.3279 in Asian morning trade after rising 0.6 percent on Tuesday and breaking resistance at $1.3245 in the process. Immediate resistance was put at $1.3300 with a major barrier at last year's highs of $1.3367.

''The interest rate story in the euro area remains more hawkish than in the U.S. or Japan and that means the euro's going up,'' said Peter Pontikis, a treasury strategist at Suncorp, adding it would have to rise above $1.3500 to look expensive.

The euro was likewise firm at 157.78 yen , having touched yet another record peak around 157.90. Traders said speculative buyers were angling to break option barriers above 158.00.

''The yen remains the funding vehicle of choice for the carry trade, ahead of the Swiss franc,'' added Pontikis.

''There's no political or bureaucratic consensus for a rate hike in Japan right now, so it seems safe to borrow in yen.'' Funds borrowed in yen tended to end up in higher yielding currencies such as sterling and the Australian and New Zealand dollars. The pound jumped to an eight-year high on the yen around 234.48 yen on Tuesday while the Aussie dollar made a nine-year peak at 94.66 yen .

Sterling and the Aussie also made big gains on the U.S.

dollar, which was one of the very few currencies not to gain on the yen.

The U.S. dollar was relatively quiet at 118.80 yen , little changed from 118.85 late in New York, with a holiday in Tokyo keeping liquidity thin.

Markets are still priced for at least one rate cut from the U.S. Federal Reserve this year and minutes from the central bank's December meeting, released later on Wednesday, could help refine the outlook.

Fed officials have been talking tough on inflation even as the market wagered on rate cuts and dollar bears will be looking for any hint of a softening tone.

The Institute for Supply Management's reading on the U.S.

manufacturing sector is also due on Wednesday, while Friday brings the closely watched nonfarm payrolls report for December.

A reading below 50 in the manufacturing ISM index -- which dipped below the boom-or-bust level for the first time in three and a half years in November -- would likely reinforce concerns about an economic slowdown, hurting the dollar further.

''This week's ISM reports on manufacturing and services will be crucial in determining the euro's momentum towards last year's 1.3367 highs,'' said Ashraf Laidi, chief FX analyst at CMC Markets in New York.

Reuters DH VP0527