Emerging FX-Asia steadies ahead of Fed, watches yen

SINGAPORE, Jan 31 (Reuters) Most Asian currencies were steady to moderately stronger against the dollar on Wednesday, with the upside capped by a weaker Japanese yen ahead of the US Federal Reserve's decision on interest rates.

DBS currency strategist Philip Wee said investors were now focused on the direction of the yen , which has hovered near a four-year low against the dollar in the past several sessions.

''It has not been easy (for the market) -- there is a lot of volatility because there is a lot of rhetoric,'' he said.

Europe's worries about the yen's slump to record lows against the euro will be raised by the Group of Seven industrial powers next week, the German finance minister said on Tuesday after a chorus of complaints from his European counterparts.

However, there was no sign of an action plan beyond reiterating their concerns to Tokyo when finance ministers from the G7 countries -- the United States, Japan, Germany, Britain, Italy, France and Canada -- meet on Feb. 9-10.

The US central bank is widely expected to keep interest rates unchanged at 5.25 percent when it concludes its two-day meeting later on Wednesday, so the main focus will be on what the central bank has to say about the outlook for rates.

Most regional units have come under pressure in recent weeks due to the fallout from Thailand's capital controls imposed last month and fading expectations of a US interest rate cut, plus a growing view the Bank of Japan will not rush to raise rates.

The South Korean won was quoted steady around 942 per dollar as government data showed the country's December current account surplus fell to a five-month low.

But analysts believe the falling current account surplus would undermine the already weakening won in the longer term.

''In addition, the weakness of yen/won is a major negative for the export competitiveness of Korea,'' said Callum Henderson, currency strategist at Standard Chartered Bank.

The Thai baht, trading in a two-tier market since the government imposed capital controls last month to deter currency speculation, stayed flat onshore near 35.8 per dollar , compared with about 34.4 offshore .

The Chinese yuan edged up to 7.7748 per dollar after the central bank set the daily mid-point rate at 7.7776.

Many analysts expect Beijing to let the currency rise at a faster pace this year to help rebalance its economy.

India's central bank is expected to raise key short-term interest rates by 25 basis points when it announces monetary policy at 0630 GMT.

The Indian rupee rose to a near one-year high after Standard&Poor's raised India's sovereign credit ratings to investment grade, a move analysts saw as helping to draw more capital inflows.

The Philippine peso continued to outperform its peers, strengthening by 0.15 percent to 48.88 per dollar, while the Singapore dollar edged up to 1.5367 per U.S. dollar.

REUTERS SY MIR RAI0937