* Trade quiet as many market players on year-end holiday
* Eye on sterling, parity with euro in sight
By Kaori Kaneko
TOKYO, Dec 25 (Reuters) - The dollar was steady against the yen on Thursday in thin holiday trade, after recovering some of losses made in the wake of dismal economic data that underscored the deepening recession in the United States.
The euro edged down against the dollar and the yen, largely driven by dealers squaring positions amid Christmas or year-end holidays.
"Some Japanese exporters are selling the dollar when the currency rises above around 90.50 yen level. But basically, activity is very quiet with few market participants and who are unwilling to take large positions," said a trader at a Japanese bank.
U.S. data on Wednesday showed consumers cut their spending in November for the fifth consecutive month and orders for costly manufactured good slumped, while the number of workers filing news claims for jobless benefits last week hit a 26-year peak.
The dollar was nearly flat at 90.45 yen from late U.S. trade on Wednesday.
The euro dipped 0.2 percent against the dollar to $1.3985 and also edged down 0.2 percent against the yen to 126.44 yen.
Market players said they were keen to see if sterling would fall to reach parity with the euro in the near term, as a deteriorating UK economy may prompt an aggressive interest rate cut, which could widen the rate gap between the UK and the euro zone.
The Bank of England cut interest rates early this month to 2.0 percent, taking borrowing costs to their lowest in more than half a century, and is widely expected to lower them further next year.
The European Central Bank is expected to slash rates further but at a slower pace from the current 2.5 percent.
"It would be no surprise if the BoE adopts a zero interest rate policy sometime early next year as interest rates among the major economies of Japan, the U.S. and Switzerland are nearly zero," the trader said.
"If the BoE joins the group, the euro will look even more attractive," he said.
The euro edged down against sterling to 94.86 pence, hovering near a record-high of 95.56 pence hit last week.
The Bank of Japan last week cut its key policy rate close to zero, mirroring steps by the the U.S. Federal Reserve, and moved to pump funds into the market to ease a corporate credit crunch.
The minutes of the BOJ's Nov 20-21 board meeting issued on Thursday said the central bank policy board memberes agreed that it would take considerable time for conditions to fall into place for a recovery in the Japanese economy.
Investors were looking ahead to a slew of domestic economic data on Friday including nationwide consumer inflation, the jobless rate and industrial output for November.
Japan's annual core consumer inflation is seen slowing to 1.1 percent in November from 1.9 percent the previous month due mainly to a sharp drop in oil prices, according to a Reuters poll.
Japan's unemployment probably stood at 4.0 percent in November, up from 3.7 percent the previous month and industrial production is expected to plunge 6.8 percent from October as companies slash output due to a rapid fall in overseas demand for their goods, according to the Reuters surveys. (Reporting by Kaori Kaneko; Editing by Edwina Gibbs)