FOREX-Yen edges up on stock slide, euro steadies

                                
 By Satomi Noguchi
                                
 TOKYO, Feb 6 (Reuters) - The yen edged up against the dollar
and the euro on Wednesday but struggled to gain further despite a
steep sell-off in equity markets that hurt risk appetite and
reduced demand for carry trades.
                                
 Traders said fears that a U.S. recession could drag other
economies down had already given a boost to bets on a broad yen
broad rise, giving little room for further gains.
                                
 The euro was steady after tumbling the previous day on weak
euro-zone service sector data that fanned expectations the
European Central Bank will cut interest rates later this year.
                                
 "Stock markets are still a strong factor to decide the yen's
direction, but there are not many yen selling positions out there
to be cut any more," said a senior trader at Japanese bank.
                                
 "Positions to buy the yen are bigger now, and that in turn is
limiting the yen's gain."
                                
 The dollar edged down 0.2 percent against the yen to 106.55
yen <JPY=>. The U.S. currency fell against the yen on Tuesday
after a dismal showing in the Institute for Supply Management's
non-manufacturing index drove Wall Street stocks sharply lower.
                                
 The index plunged in January to levels not seen since the
2001 recession, reinforcing fears the economy is slowing even as
the Federal Reserve has slashed benchmark rates by a total of 225
basis points in a bid to revive growth.
                                
 Tokyo's Nikkei share average <.N225> plummeted 4.7 percent
and Hong Kong's stock index <.HSI> tumbled 5.4 percent in a
half-day trading session ahead of the Lunar New Year break.
                                
 Still, the yen is likely to resume its rally if stocks in
Europe track New York and Asian markets lower later in the
session, traders said.
                                
 Currency market activity slowed in the afternoon as financial
markets in China, Taiwan and Korea were closed for the Lunar New
Year holiday.
                                
 In carry trades, investors borrow the low-yielding Japanese
currency to fund investments in assets with higher yields
elsewhere. Such leveraged trades are vulnerable when stock
markets fall and price volatility rises.
                                
 EYE ON EURO
                                
 The euro was little changed at $1.4640 <EUR=>, after dipping
to the day's low around $1.4625 earlier and pulling further away
from its record high of $1.4968 reached in November.
                                
 The euro slid 1.3 percent against the dollar on Tuesday, its
steepest one-day loss since mid-December, after service sector
growth in the euro zone slowed in January to its most sluggish in
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