By Shinichi Saoshiro
TOKYO (Reuters) - The dollar edged up against the yen early on Thursday while the euro and sterling held their gains versus the greenback, with a rise in bond yields supporting the currencies. The dollar was up 0.15 percent at 104.640 yen, inching towards a three-month high of 104.875 seen on Tuesday, lifted when the benchmark Treasury yield rose to a nine-day high overnight.
The euro was steady at $1.0909 after adding 0.2 percent the previous day. The common currency managed to put some distance between a 7-1/2-month low of $1.0851 struck on Tuesday, when the dollar had surged against its peers on reinforced expectations towards the Federal Reserve hiking rates later this year.
The euro was buoyed by a rise in the benchmark German bund yield, which rose to a four-month high overnight to exceed the spike by its U.S. peer.
Euro zone bond yields rose 7-9 basis points the previous day as a sell-off in British gilts spilled over to the bloc.
Bund yields, kept low for years by the European Central Bank's aggressive monetary easing, have risen since September as investors have come to question the effectiveness of ultra-easy policies by major central banks.
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The pound consequently gained about 0.5 percent on Wednesday and last stood little changed at $1.2250, having pulled away from an 18-day low of $1.2082 plumbed on Tuesday during a "mini flash crash."
"Higher bond yields lifted the euro and pound, but another factor behind the bounce is the fact that participants are buying these currencies back after their earlier slides were perceived to have been overdone," said Masafumi Yamamoto, chief FX strategist at Mizuho Securities in Tokyo.
"The pound is rebounding on reduced expectations of a November easing by the Bank of England, taking the euro higher as well."
BoE Governor Mark Carney said on Tuesday that the central bank could not ignore the pound's "fairly substantial" recent drop, helping put a floor under sterling earlier.
Sterling's recent weakness and unexpectedly robust economic data have prompted most to rule out a Nov. 3 rate cut by the BoE.
The market will look to the third quarter U.K. GDP data due later in the day for the latest economic clues..
The dollar index was effectively unchanged at 98.652. The index hit a nine-month high of 99.119 on Tuesday but slipped to as low as 98.335 on Wednesday as the dollar's rally sputtered.
The Australian dollar was flat at $0.7648 after being nudged off a high of $0.7709 reached on Wednesday after stronger-than-expected domestic inflation data tempered expectations for a near-term easing by the Australian central bank.
(Reporting by Shinichi Saoshiro; Editing by Eric Meijer)