TOKYO, Feb 7 The yen stayed near one-month highs against the dollar on Wednesday, support

TOKYO, Feb 7 (Reuters) The yen stayed near one-month highs against the dollar on Wednesday, supported by concerns that the currency's relative weakness may be discussed at this weekend's meeting of Group of Seven finance ministers and central bankers.

U.S. Treasury Secretary Henry Paulson said on Tuesday that the yen's value was set by market fundamentals, suggesting the U.S. government does not see a weak yen as a problem.

The yen slipped broadly following Paulson's comments, but it quickly regained ground as dealers kept covering short yen positions in the runup to the G7 meeting in Essen, Germany, on Feb. 9-10.

Data last week showed that speculative positions in yen futures had hit a record high for three straight weeks.

''Market players have not yet done enough covering of yen short positions,'' said Nobuo Ibaraki, a foreign exchange manager at Nomura Trust and Banking.

The G7 meeting remains the focus in the market as European officials have been calling for debate on the weak yen, while U.S. and Japanese officials have been playing down the issue.

A senior official at Japan's Finance Ministry said on Wednesday that the yen could be discussed at the G7 but that it was unlikely to be the main subject of the talks.

The yen is the lowest-yielding currency among industrialised countries, with official interest rates at 0.25 percent, way below 5.25 percent in the United States and 3.5 percent in the euro zone.

That has encouraged investors to dump yen for higher yields elsewhere, pushing the euro up to a record high against the yen, while the dollar hit a four-year high above 122 yen in late January.

By 0300 GMT, the dollar had edged up to 120.15 yen from 120.10 yen in late U.S. trade on Tuesday as some dollar buying linked to options emerged, traders said. Still, it stayed within striking distance of a one-month trough around 119.95 yen hit the previous day.

The euro was little changed at 155.95 yen It hit a three-week low of 155.27 yen on Tuesday.

The single currency barely budged against the dollar at $1.2980 The Australian dollar drifted lower from a near two-week high against its U.S. counterpart after the Reserve Bank of Australia kept interest rates steady at 6.25 percent on Wednesday as widely expected.

ECB AWAITED The European Central Bank is expected to keep interest rates on hold at a policy meeting on Thursday.

The market will be listening out for comments from ECB President Jean-Claude Trichet at the post-meeting news conference for clues about the future path of monetary policy in the euro zone, traders said.

''Investors want to know if Trichet's comments will back up an expected March rate hike and whether he will give any hints about the ECB's policy beyond March,'' said Masaki Fukui, a senior market economist at Mizuho Corporate Bank.

Euro sentiment was dampened after a report from Market News International late last week that ''well-informed sources'' had said the ECB may pause for a while after the next rate rise.

In a Reuters poll taken last week, none of the economists surveyed predicted a move at Thursday's meeting, but a majority expected the ECB to raise rates to 3.75 percent in March.

The Bank of England will start a two-day meeting later in the day, and is seen keeping interest rates at 5.25 percent.

REUTERS CS DB1159