* Yen steady after dipping overnight
* Sterling eyes BOE inflation report
SINGAPORE, Aug 8 (Reuters) - The euro held steady against the dollar on Wednesday, supported by persistent hopes for further action by the European Central Bank to lower the borrowing costs of Spain and Italy.
The yen was steady to firmer, after having sagged the previous day as investors continued to favour riskier assets on hopes for ECB action to contain the euro zone's debt crisis.
The euro held steady from late U.S. trade on Tuesday at $1.2395, not too far from a one-month high of $1.2444 hit on Monday on trading platform EBS.
The dollar slipped 0.1 percent versus the yen to 78.52 yen , but hovered near the top of a range between 78.80-77.90 that has largely held for past two weeks.
One factor supporting the dollar against the yen was a rise in U.S. Treasury yields. Both two-year and 10-year U.S. yields have hit one-month highs this week against a backdrop of improving investor appetite for risk.
"Two-year yields have jumped in recent days. I think as long as U.S. yields move higher then of course dollar/yen will be under upward pressure," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
Still, the impetus for a further rise in Treasury yields and dollar/yen may be lacking over the next few days, when U.S. economic data releases will be relatively light, he said.
"For bond yields to move higher you need to see some credible signs of U.S. recovery... But the lack of data in the coming days suggests it's not going to happen," Kotecha added.
The potential for fund repatriation by Japanese institutional investors is another factor that may weigh on the dollar against the yen in the near term, traders say.
August is a month that typically sees a large amount of bond redemptions in U.S. Treasuries as well as coupon payments, and traders say Japanese investors holding Treasuries could potentially sell the dollar against the yen to bring home some of the proceeds.
APPETITE FOR RISK
The Australian dollar dipped 0.1 percent to $1.0549 , having hit a four-month high of $1.0604 on Tuesday.
Against the yen, the Aussie dollar eased 0.2 percent to 82.80 yen, but still remained near a three-month high around 83.22 yen hit on Tuesday.
Investors tend to buy the yen and U.S. dollar in times of heightened market stress, but sell them for higher-yielding currencies when there is appetite for risk.
"For now, markets continue to be driven by expectations that a powerful ECB response is looming once the governments come to terms with asking for help," analysts at BNP Paribas wrote in a note, warning currencies remained vulnerable to headline risk amid quiet summer markets.
Sterling held steady at $1.5615, its moves limited ahead of the Bank of England's quarterly inflation report due later on Wednesday.
Analysts say sterling could come under pressure if the Bank of England slashes its growth and inflation forecasts, a move that would bolster expectations for more economic stimulus later this year.
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