* BOJ seen easing at next Tuesday's policy meeting
* Rebound in UK growth helps support sterling
* U.S. Q3 GDP later Friday seen as next event risk
By Lisa Twaronite and Ian Chua
TOKYO/SYDNEY, Oct 26 The yen steadied in Asian trading after hitting a four-month low against the dollar early Friday, but it was still on track for a second week of losses as markets geared up for the Bank of Japan to ease policy next week.
The dollar was down about 0.4 percent at 79.99 yen after rising as high as 80.38 yen early in the session. A break of its June peak of 80.63 yen would take it back to highs unseen since April 27. The greenback was still headed for weekly gains, adding to last week's rise of 1.1 percent.
The yen also gained against the euro, with the euro skidding 0.5 percent late in the session to 103.37 yen, moving away from a five-month peak of 104.59 yen on Tuesday.
"The yen has weakened on expectations of BOJ easing next week, but many are wondering if the old adage, 'buy the rumour, sell the fact' will hold true, and whether the dollar's gains will last," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
"Looking at the very short term, we see yen weakness because it is about what the BOJ is going to do, but after that, it's about what will the government do, and about macroeconomic factors -- in the medium term, these factors are going to matter more, and the trend is not so clear," he said.
The BOJ is expected to ease monetary policy at its meeting on Tuesday, by expanding asset purchases, and it might make a stronger commitment to continue pumping cash until its 1 percent inflation target is attained.
Japanese inflation data reinforced expectations for the BOJ to ease, with nationwide core consumer prices falling for the fifth straight month in the year to September.
Lawmakers have kept steady pressure on the BOJ to play its part by stepping up efforts to support the economy. Japan's cabinet approved a 422.6 billion yen ($5.3 billion) economic stimulus package of subsidies and tax grants on Friday that will tap budget reserves to avoid selling new debt.
STERLING SLIPS SLIGHTLY AFTER OLYMPIC BOOST
After drifting lower for much of this week, the euro looked set to finish weaker, its outlook clouded by uncertainty about when Spain will request a bailout and trigger the European Central Bank's bond-buying programme.
The single currency was slightly lower, down 0.1 percent at $1.2923, well off its Oct. 17 high of $1.3140. The euro was seen as hemmed in a $1.2800/1.3200 range until Spain asks for aid, traders said.
Sterling was slightly down, losing about 0.1 percent to $1.6102 after jumping on Thursday from two-week lows of $1.5914 after Britain posted its strongest growth in five years in the third quarter, thanks in part to a lift from hosting the Olympics.
The growth data prompted markets to reassess the chances of more stimulus from its central bank, which underpinned the pound.
The Australian dollar last traded down 0.4 percent at $1.0314, moving away from the week's high of $1.0397 hit on Thursday, but having survived yet another downside test to $1.0230 this week.
It was supported by domestic factors such as a higher-than-expected reading of Australian inflation earlier in the week.
The foreign exchange market's next key focus is the advanced reading of U.S. third-quarter gross domestic product due later on Friday. The annualised rate of growth in the world's largest economy is seen at 1.9 percent, picking up from an anaemic 1.3 percent pace.