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By Jamie McGeever
LONDON, Aug 2 (Reuters) - The yen inched up against other major currencies on Thursday as investors cautiously got back into unwinding carry trades, a trend in recent weeks prompted by a burst of credit and equity market volatility.
The euro and sterling were little-changed ahead of the Bank of England and European Central Bank interest rate decisions. Both are seen leaving rates on hold this month, although the euro drew support after the ECB said it will hold a news briefing, a sign a September hike could be on the cards.
A selloff in equities and corporate bonds over the past few weeks has caused hefty losses for some banks and hedge funds. For currency traders, this has sparked a reversal of risky carry trades where cheap borrowing in the yen is used to fund purchases of high-yielders like the Australian dollar.
But the yen's gains on Thursday were limited. Indeed, major currencies were generally confined to tight ranges as traders awaited the open on U.S. stock markets for firmer direction.
Although Wall Street staged a late rally on Wednesday, triggering gains on Asian and European bourses on Thursday, U.S. stock futures pointed to a lower open, keeping investors on edge.
"Where we stand right now ... is the market still doesn't seem to have made up its mind if there is a more protracted issue here that would force a further (major) unwind of the carry trade," said Trevor Dinmore, senior currency strategist at Deutsche Bank in London.
"There's been more stabalisation over the past 24 hours ... and no clear direction from equity markets today," Dinmore said, adding that the correlation between equities and carry trade-related currency moves in recent weeks has been tight.
At 1010 GMT the dollar was down 0.1 percent at 118.69 yen after setting a four-month low the previous day <JPY=>, and the euro was 0.2 percent off at 162.17 yen <EURJPY=>, inching back towards Wednesday's three-month low.
ECB TO HOLD PRESS CONFERENCE
The New Zealand dollar was down 0.2 percent at 90.74 yen <NZDJPY=R> and the Australian dollar fell 0.2 percent to 101.50 yen <AUDJPY=R>.
The euro was steady at $1.3665 <EUR=>, well below record highs above $1.3850 struck in July, while sterling was off a touch at $2.0295 <GBP=>.
The ECB is set to keep policy at 4 percent at 1145 GMT after a telepconference and will hold a post-decision news briefing at 1230 GMT. The contents of that briefing will be released under embargo at 1330 GMT, or at the latest 15 minutes after it ends.
"This effectively removes any uncertainty as to the path of rates. The announcement that they are going to hold a news conference virtually guarantees the ECB will move to a 'strong vigilance' stance, signalling a move in September," said Charles Diebel, head of European rates strategy at Nomura in London.
Traders will be paying close attention to what the ECB says about inflation as well as the recent credit-fueled volatility that's rocked financial markets.
A range of officials including U.S. Treasury Secretary Henry Paulson have expressed confidence that the market volatility would not derail the global economy and said the U.S. subprime mortgage difficulties were mostly contained.
International Monetary Fund Deputy Managing Director John Lipsky said on the sidelines of an Asia Pacific Economic Cooperation finance ministers meeting in Australia that recent market volatility and a spike in energy costs have not been enough to change IMF forecasts for growth. [ID:nSYD36741]