TOKYO, Sept 6 (Reuters) The yen edged up across the board on Thursday as investors trimmed risky po

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TOKYO, Sept 6 (Reuters) The yen edged up across the board on Thursday as investors trimmed risky positions in higher-yielding currencies on worries about the potential economic damage from the ongoing troubles in credit markets.

Australia's central bank widened the assets that could be used in its money market operations on Thursday, a day after the Bank of England raised its reserves target as major central banks struggle to relieve the interbank lending strains.

The reluctance of banks to lend to each other, partly due to worries about potential exposures to asset-backed commercial paper facilities and U.S. subprime mortgages, has stirred expectations for the Federal Reserve to cut rates.

The European Central Bank holds a policy meeting later in the day and is widely expected to hold rates at 4.0 percent, with investors awaiting comments from ECB President Jean-Claude Trichet to see what central bankers think of the market woes.

"The ECB said it is monitoring the volatility in the European money markets and may act to help restore 'orderly conditions'.

This has increased speculation that it rules out any interest-rate hike at tonight's ECB meeting," said currency strategists at RBC Capital Markets in a note to clients.

A tumble in stock markets also prompted investors to cut back on risky positions like carry trades -- using low yielding currencies like the yen to fund purchases of higher-yielding currencies.

In early trade, Japan's Nikkei share average fell 1.1 percent following losses in Wall Street shares overnight.

The dollar dipped 0.2 percent from late U.S. trade to near 115.00 yen but held off an early low of 114.81 yen and was still above the 14-month low of 111.60 yen struck in mid-August.

The euro slipped 0.2 percent to 156.95 yen while the single European currency was little changed near $1.3650 The dollar took a hit on Wednesday after data showing a sharp plunge in pending home sales in July and the Fed's beige book report on the economy said the market turbulence has further undermined housing activity.

The latest data underscoring the housing market crisis further boosted expectations for the Fed to cut its benchmark federal funds rate by 25 basis points to 5.0 percent later this month and at least once more before year-end.

The Fed has already pumped extra funds into the banking system and cut its discount rate for direct lending to institutions to help relieve the money market squeeze.

Despite the measures taken by the Fed and others, interbank deposit rates such as LIBOR for one month and three months remain much higher than usual compared with the overnight policy rates targeted by central banks.

REUTERS PBB RN0707

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