By Satomi Noguchi TOKYO (Reuters) - The dollar edged up against a basket of currencies on Tuesday as investors remained jittery over a global recession with a dismal outlook for U.S. companies in a harsh economic environment. The yen surrendered gains against the dollar and slipped against the higher-yielding Australian dollar as Asian shares pared earlier losses. Asian stock markets initially fell on Tuesday, tracking Wall Street shares lower as worries about the future of U.S. companies like General Motors (GM.N: Quote, Profile, Research, Stock Buzz) mounted. The Nikkei stock average dropped over 4 percent in early trading but later halved its losses, with the market receiving a sense of relief from continued gains in so-called China stocks. .T The rebound in Asian shares slightly eased investor wariness about risk and weighed on the yen, which has tended to benefit in the recent environment of extreme risk aversion. Market players say the focus is on how the financial crisis is affecting corporations and the economy as a whole. "The market is watching out for news on individual companies to see how developments at firms will affect the overall market and the economy," said Hideki Amikura, deputy general manager of the forex section at Nomura Trust Bank. "But major reactions in the market may be delayed until after the outcome of the G20 meeting at the weekend," Amikura said. Traders said gloomy U.S. company news including layoffs, a bankruptcy filing by a major electronics retailer and a record $29 billion quarterly loss by mortgage giant Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) dented investor sentiment and spurred worries that the economy was in for a long and deep recession. Finance officials from the G20 group of developed and biggest emerging economies agreed on Sunday on the need to take measures to stimulate growth and fight off the threat of a global recession. At the Washington summit this weekend, world leaders meet to discuss precisely what steps they need to work out in coming months, and how much more say emerging economies will have over global finance. The dollar index, which measures the greenback's performance against six major currencies, edged up 0.1 percent to 86.05 .DXY. The euro slipped 0.2 percent to $1.2716 from late New York trade on Monday after briefly dropping below $1.27 on growing evidence from the euro zone backing views that the economy there had probably already slipped into a recession. Against the yen, the dollar was unchanged at 98.02 yen after retreating to 97.49 yen. "We are in a period in which foreign investors including hedge funds prepare for the year-end and raise their cash holdings," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities. "The yen could rise further if there are more funds rushing to liquidate positions, but the peak may have passed for now," Shioiri said. The euro fell 0.3 percent against the Japanese currency to 124.70 yen, after dropping as low as 123.80 yen earlier as speculators pushed the yen higher when the Nikkei momentarily dropped more than 4 percent. The Australian dollar recovered from earlier losses against the dollar and the yen to rise 0.4 percent to $0.6719 and edge up 0.2 percent to 65.87 yen, respectively. Earlier, the Aussie fell as data showing Australian business conditions have taken a steep turn for the worse as confidence slumped to record lows. (Additional reporting by Shinichi Saoshiro; Editing by Chris Gallagher)

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