The dollar steadied against the yen on Friday but stayed within reach of a 15-year trough hit last week, after weaker U.S. data prompted investors to sell higher-yielding currencies and stocks on risk aversion.

Data showed on Thursday that new U.S. jobless claims marked a nine-month high last week, and Mid-Atlantic manufacturing shrank in August for the first time in more than a year, deepening worries about the U.S. economic recovery.

Assets with less risk such as government bonds, the yen and the Swiss franc benefited from concerns about the world's biggest economy.

Against the Japanese currency, the greenback fell on Thursday toward a 15-year low of 84.72 yen, while two-year U.S. Treasury yields hit an all-time low.

The dollar/yen rate has a high correlation with U.S. and Japanese government bond yield spreads, which are now narrowing.

But the dollar has managed to rise above the psychologically key 85.00 yen level thanks to caution among traders about possible intervention by Japanese authorities.

Safe-haven demand dominates financial markets once again, said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities.

Everyone thinks the dollar will extend losses against the yen. But fears of intervention and caution about additional monetary easing steps in Japan are making players hesitate to aggressively sell the dollar for now.

The dollar fell as low as 85.19 yen before climbing back to 85.30 yen, down 0.1 percent from late U.S. trade.

Against the Swiss franc, the dollar was little changed at 1.0311 francs, having dropped to a seven-month low of 1.0257 francs on Thursday.

The dollar index, a gauge of its performance against a basket of six major currencies, inched up 0.1 percent to 82.555 .DXY.

The euro was down 0.2 percent at $1.2797 after falling as low as $1.2772 on trading platform EBS on Thursday. Support comes in at the 100-day moving average around $1.2770.

Against the yen, the single European currency hit a seven-week low of 109.02 yen on EBS but found support at the psychologically important 109.00 level. A fall below 109.00 yen would open the way for a slide toward an 8-½ year low of 107.30 yen reached in late June, traders said. The euro was flat at 109.48 yen.

There is market talk of large stop-loss orders below the 108.80 yen area for the pair, while bids are seen sitting mostly around 108.95/96 yen, traders said.

MARKET PONDERS BOJ MOVE

The Bank of Japan may consider easing monetary policy next month and is lining up its options, but is in no mood to act in the near term.

There has been persistent speculation that the yen's strength may nudge it to act before its September 6-7 rate review, or even before a meeting between Prime Minister Naoto Kan and BOJ Governor Masaaki Shirakawa expected next week.

But Japan's top government spokesman and finance minister both said they do not know when Kan and Shirakawa will meet.

Traders said investors speculate the BOJ will tweak its a fund supply operation introduced last December or buy more Japanese government bonds.

The yen is highly unlikely to reverse its upward trend if the BOJ only announces an extension of its new operation, said a trader at a big Japanese bank. Many people doubt the step's effectiveness in helping the economy.

Even if any new policy measures boost major currencies against the yen, Japanese exporters who have been unable to sell enough dollars and euros due to the yen's recent strength will use any bounce in those currencies as an opportunity to repatriate their overseas profits, traders say.

The Australian dollar was softer a day before Australia's general election on Saturday as concerns about a slowdown in the United States dented the appetite for higher-yielding currencies and other types of assets with more risks. The Aussie dipped 0.3 percent to $0.8897. (Additional reporting by Kaori Kaneko; Editing by Michael Watson)

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