TOKYO (Reuters) - The yen and the dollar steadied against other major currencies on Thursday ahead of interest rate decisions in the euro zone and Britain, after having risen earlier on concerns about a long and deep global recession.
But euro and the British pound remained vulnerable before decisions by the central banks, with expectations high that they will ease monetary policy aggressively to boost deteriorating economies and counter the threat of deflation.
Asian shares rose after a late rally in U.S. stocks, but demand for the low-yielding yen and the safe-haven greenback was intact after a slew of dismal data around the world kept investors concerned about the depth of the global recession.
Japanese companies cut investment in the third quarter by a higher-than-expected 13 percent from a year ago, a report showed, leading economists to expect the country's gross domestic product data, which has already initially shown a contraction, will be adjusted lower.
A report also showed the U.S. service sector posted its worst slump on record, adding to fears about Friday's release of the government's monthly employment figures.
"Having seen weak economic numbers coming in one after another, it's difficult for market sentiment to improve dramatically," a senior trader at a major Japanese bank said.
The euro fell 0.1 percent from late New York trade at $1.2709. The European Central Bank is seeing cutting rates on Thursday by at least 50 basis points to 2.75 percent, but many economists are expecting a 75 basis point cut.
Sterling was down 0.1 percent to $1.4770, having pared some losses made after data showing that Britain's service sector shrank faster than expected in November. Against the yen, it edged down 0.1 percent to 137.75 yen but stayed above a 13-year low around 136.30 yen hit the previous day.
The data boosted expectations that the Bank of England may slash rates by at least a full percentage point from 3.0 percent later in the day to shore up the domestic economy.
Traders said the euro and the pound could fall if large interest rate cuts came in as expected due to their diminishing higher-yielding appeal.
But they may rebound quickly because investors now reward currencies of countries that have been acting proactively to save the economy from a deep recession, traders said.
"The market may have become used to extremely weak economic numbers and are now wanting to see how dramatic policy actions taken across the globe, including monetary easing, will impact the economy and the stock markets," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank.
"If stock markets become more resistant to further falls, the yen may have difficulties making further gains," Yamashita said.
The dollar was flat at 93.25 yen, after falling back toward a five-week low of 92.53 yen hit on trading platform EBS the previous session. The euro was also little changed at 118.54 yen.
The New Zealand dollar came off lows and was steady at $0.5330, after the country's central bank cut interest rates by a record 150 basis points to 5.0 percent, as expected.
