* Dollar edges higher vs yen, euro recovers vs dollar
* Dollar holds around 90 yen as short positions trimmed
* Sterling slammed on report rates to stay low (Adds details, quote, updates prices, changes byline, changes dateline from previous LONDON)
By Nick Olivari
NEW YORK, Oct 12 (Reuters) - The dollar gained for the second straight session against the yen on Monday, rising to a more than two-week high, with traders covering short positions as they debated the timing of a tightening in U.S. monetary policy though some investors remained cautious.
The U.S. currency shed early gains against the euro as factors such as large deficits and concern about its status as the pre-eminent reserve currency weighed. Data last week showed speculators held large dollar short positions.
The pound wallowed against both the euro and dollar after a a report said British interest rates would stay at rock-bottom levels for some time.
"There is still ongoing dollar weakness with a modicum of strength against the yen," said Marc Chandler, head of global strategy at Brown Brothers Harriman in New York. "That's largely technical with no trend change."
In early New York trade, the dollar was 0.2 percent higher at 89.98 yen, compared with late Friday's levels, after rising to 90.46 yen, the highest since Sept. 25. The gains pushed the dollar further from the trough touched last week, which was the lowest since January.
The euro rose 0.2 percent to $1.4765, recovering from early losses. The single European currency also rose 0.5 percent against the yen at 132.85 yen.
Trading was described as light with Tokyo markets shut for a one-day holiday and the U.S. Columbus Day holiday.
Sterling fell broadly, losing 0.2 percent against the dollar, 0.6 percent against the euro, and 0.6 percent against the Swiss franc, according to Reuters data, after a report said British interest rates would stay at rock-bottom levels for some time.
Sterling traded around a five-month low against the dollar and a seven-month low against the euro.
The Centre for Economics and Business Research (CEBR) said British interest rates would stay at 0.5 percent until 2011 and not rise to 2 percent until 2014.
"That doesn't come as a surprise to anybody," Chandler said. "They are going to keep rates on hold for some time."
INTEREST RATES
A surprise rate hike by Australia last week put renewed market focus on the direction of interest rates.
The dollar rebounded after U.S. Federal Reserve Chairman Ben Bernanke said last Thursday that policy could be tightened as a recovery takes hold.
St. Louis Federal Reserve President James Bullard added to the debate on Sunday, saying medium-term inflation risks in the U.S. economy could be higher than thought.
Later this week, traders will focus on U.S. corporate earnings for clues on the outlook for risk tolerance. Results from JPMorgan Chase & Co and Goldman Sachs Group Inc are slated.
"Earnings should be broadly supportive for risk-taking," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.