* Yen slips but holds above 5-year low set last week
* Euro steady but well off recent multi-year highs
By Lisa Twaronite
TOKYO, Jan 6 (Reuters) - The dollar held steady in early Asian trading on Monday, supported by an upbeat outlook on the U.S. economy by outgoing Federal Reserve Chairman Ben Bernanke that fanned expectations of more stimulus reduction from the U.S. central bank.
Many market participants in Tokyo returned from the New Year holiday on Monday, to find that the yen slumped to a fresh five-year nadir of 105.45 yen against the dollar on Thursday, before retracing slightly. On Monday, the dollar was buying 104.89 yen, up about 0.1 percent on the day.
The dollar index, which tracks the greenback against a basket of six major currencies, rose about 0.1 percent to 80.860 .
Bernanke, who will leave the helm of the Fed at the end of this month, heightened market expectations that the central bank will continue to scale back its bond purchases in 2014, although he tempered his rosy assessment by repeating that the overall recovery “remains incomplete.”
Still, his comments pushed the yield on benchmark 10-year U.S. Treasuries up to 3 percent, which increased the greenback’s appeal and gave investors no incentive to further pare their yen-short positions.
“Market positioning is still extreme, suggesting a vulnerability in the market,” strategists at Brown Brothers Harriman said in a note to clients.
“However, with Fed tapering and U.S. rates firm, many look for the yen to weaken sharply this year. This will likely encourage dollar buying on pullbacks,” they said.
Richmond Federal Reserve President Jeffrey Lacker also lent some lustre to the dollar, telling an event in Baltimore he expects the Fed might raise short-term interest rates from zero in early 2015 and perhaps sooner if the economy strengthens more than forecast this year.
The first full trading week of the year could offer investors some more clues about the dollar’s direction in the months ahead.
The minutes of the U.S. Federal Reserve’s December policy meeting will be released on Wednesday. Central bank policy makers decided at that meeting that they would begin to pare stimulus, and cut asset purchases by $10 billion to $75 billion a month. The minutes could hint at the timing and pace of any further reductions to the Fed’s stimulus.
Friday will bring the December U.S. payrolls report, which could suggest whether domestic job growth is strong enough for the Fed to continue tapering its asset buying.
The euro was steady at 142.54 yen, but remained well off its five-year peak of 145.67 yen set on Dec. 27.
The euro was also well off a two-year high against the dollar hit that same day last month of $1.3892. It was nearly flat on the day, at $1.3593.