FOREX-Dollar firms, ECB expectations pressure euro
* Yen edges down as upbeat China data bolsters risk appetite
* Investors expect easing steps at Thursday's ECB meeting
* Speculators upped short bets on euro in latest week-IMM
* Aussie skids on downbeat data ahead of RBA meeting
By Lisa Twaronite
TOKYO, June 2 (Reuters) - The dollar edged up in Asian trade on Monday as the yen started the week on the back foot against its major counterparts, though pressure remained on the euro as the market braced for further stimulus measures from the European Central Bank this week.
Short-term investors increased short positioning on the euro to 16,633 contracts from 9,220 a week earlier, according to data for the week ended May 27 released by the Commodity Futures Trading Commission on Friday.
The ECB is preparing a package of policy options for its June 5 meeting that includes cuts in all its interest rates, Reuters reported last month.
"With so much expected from next week's meeting, focus is shifting to what the Governing Council could do to 'surprise' the markets," such as signalling that more aggressive unconventional quantitative easing measures could be forthcoming, strategists at CitiFX wrote in a note to clients.
"If the ECB does not surprise markets, we could see some cautious profit taking on EUR. That said, we would still think that the risks for EUR could be on the downside over more medium term," they said.
The euro edged down to $1.3628, and remained not far from a three-month low of $1.3586 touched on Thursday.
But against the yen, the euro ticked up about 0.2 percent to 139.03 yen, moving away from a four-month low of 137.98 yen hit on Thursday.
The yen wobbled as mergers-and-acquisition news raised the prospects of more fund outflows, and strong China data whetted investors' risk appetite and decreased the appeal of the safe-haven currency.
"The yen-selling trend has strengthened today, partly due to the morning's Dai-ichi news, as well as the weekend China PMI data," said Ayako Sera, senior market economist at Sumitomo Mitsui Trust Bank.
Japanese insurer Dai-ichi Life Co is in advanced talks to buy U.S. insurer Protective Life Corp in a deal that could be worth over $5 billion.
On Sunday, China's official data showed factory activity expanded at its quickest pace in five months in May, underscoring Chinese economy's solid improvement in the second quarter.
Fading expectations that the Bank of Japan will muster additional easing steps kept the yen's weakness in check.
Current and former central bankers say an informal debate is even under way on how the BOJ can eventually exit its massive monetary easing.
Strategists at Barclays, who had predicted further easing steps could come as soon as next month, now foresee the BOJ holding pat for the rest of 2014, as Japan's core consumer prices are rising faster than expected. However, they still cite the possibility of more measures in October.
The dollar bought 102.02 yen, up about 0.2 percent against its Japanese counterpart.
The dollar index, which tracks the greenback against a basket of six major rivals, edged up about 0.1 percent to 80.445 . It remains within sight of Wednesday's high of 80.581, which was its loftiest peak since early April. A break of its April 4 high of 80.599 would take it to its highest levels since mid-February.
The sustainability of the dollar's rise depends on whether U.S. Treasuries continue to rally, or whether that trend has ceased. In recent weeks, low U.S. yields have pushed down the greenback, making dollar-denominated investments less attractive.
The yield on benchmark 10-year U.S. Treasuries edged up in Asia to 2.485 percent from its U.S. close of 2.457 percent on Friday, moving away from Thursday's low of 2.422 percent, which was its deepest nadir since last June.
Markets in China and Hong Kong were closed on Monday for a public holiday, which could lead to less forex market activity. They will reopen on Tuesday.
Looking ahead, central bank policymakers in Australia, Canada and Britain will also meet this week.
The Aussie skidded about 0.5 percent to $0.9259 after Australian building approvals unexpectedly fell in April, reinforcing expectations that the Reserve Bank of Australia will hold its cash rate at a record low of 2.5 percent on Tuesday.
Friday will bring the closely watched U.S. nonfarm payroll report for May. Employers are expected to have added 215,000 workers last month, a Reuters poll found, after April's 288,000 increase, which was the biggest gain since January 2012. (Editing by Richard Pullin and Chris Gallagher)
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