FOREX-Yen steadies as stock market worries ease

TOKYO, April 20 (Reuters) - The yen steadied on Friday after U.S. share prices managed to hold up despite sharp drops in other stock markets on worries about an overheating Chinese economy, calming fears of a massive unwinding of yen carry trades.

The yen rose broadly on Thursday after strong Chinese economic growth data triggered fears of interest rate hikes, hitting Asian stock markets and prompting investors to cut back on short positions in the Japanese currency.

The Nikkei share average slid 1.67 percent on Thursday, while Chinese stocks lost 4.5 percent to book the sharpest drop since Feb. 27 when the Shanghai Composite Index .SSEC plunged 9 percent.

But the Japanese currency trimmed gains in U.S. trade on Thursday as the Dow posted a record closing high for a second day in a row.

"Movements in stock markets continue to be the main factor in the currency market, although the Dow's solid performance overnight soothed worries about yen carry trades a bit," said Tsutomu Soma, a senior manager at Okasan Securities.

In the carry trade, investors borrow the low-yielding Japanese currency to buy higher-yielding assets abroad.

The Nikkei .N225 rose 0.47 percent to 17,452 in early trade on Friday.

The dollar was at 118.45 yen JPY=, unchanged from late New York trade on Thursday.

The euro hit a two-year high of $1.3629 against the dollar EUR= in early trade as expectations that the European Central Bank will boost interest rates in coming month supported the single currency.

The euro edged up 0.1 percent against the yen to 161.40 yen EURJPY=, staying below a record high of 162.43 yen hit on Monday.