* Forex market in tug-of-war over mixed data
* Yen shows limited reaction to BOJ tankan
* Japan investors pick up overseas assets at start of Q3
By Rika Otsuka
TOKYO, July 1 (Reuters) - The dollar steadied on Wednesday, holding gains made the previous day after an unexpected fall in U.S. consumer morale cooled optimism about an economic recovery, prompting investors to seek the safety of the greenback.
The Bank of Japan's June tankan corporate survey showed on Wednesday that big manufacturers' sentiment pulled back from a record low hit three months ago, although the improvement was smaller than forecast.
The yen showed limited reaction to the survey as market participants said it offered no major surprises. But it later fell against major currencies as Japanese mutual funds and pension funds put their money to work at the start of a new quarter, traders said.
But overall the market is playing tug-of-war over mixed data, with investors swinging between hopes of an imminent global rebound and fears of a delayed recovery.
The Conference Board's U.S. consumer confidence index fell in June to 49.3 from a downwardly revised 54.8 for May, suggesting the 18-month-long recession had yet to loosen its grip on the economy.
A separate report on April U.S. housing prices offered some encouraging signs that the worst for the housing market may be over, although it was not enough to buoy investor sentiment.
"There's no consensus in the market right now between optimism and pessimism, as it's in the midst of recovery trade after extreme moves," said Minoru Shioiri, chief manager of forex trading at Mitsubishi UFJ Securities.
"Perhaps you can say the market has been leaning toward risk-taking, but it still needs to affirm that a recovery in the real economy is keeping pace with expectations."
The dollar index, which measures the dollar against a basket of six currencies, was up 0.1 percent at 80.222.
The euro was little changed from late U.S. trade at $1.4036 after falling as low as $1.4000 on trading platform EBS.
The dollar rose 0.5 percent to 96.80 yen after climbing to 97.00 yen for the first time in nearly two weeks.
"Investors are a bit cautious about chasing the dollar above 97 yen as they know Japanese exporters are looking for a chance to sell the greenback," said a trader at a big Japanese bank. Data showed on Wednesday that China's official purchasing managers' index rose in June for the fourth straight month, showing that the country's economic recovery is on more solid ground..
That encouraged Japanese investors to pick up overseas assets, pushing down the yen broadly, with low liquidity ahead of the U.S. government's high-profile monthly employment report exaggerating price moves.
The euro advanced 0.5 percent to 135.87 yen, while the Australian dollar climbed 0.4 percent to 78.04 yen.
Three Japanese mutual funds or "toshin" launched on Wednesday attracted a total of 21.02 billion yen ($217 million), according to data compiled by Reuters. The funds invest in U.S. crude oil futures and are managed by ITC Investment Partners.
EYES ON U.S. DATA
The U.S. employment report is due on Thursday as U.S. financial markets will be shut on Friday for the Independence Day holiday.
Economists expect the economy shed 363,000 jobs in June after losing 345,000 in May.
Top Federal Reserve officials said on Tuesday the central bank should not rush to raise interest rates or remove other accommodative policies as soon as the U.S. economy climbs out of recession, though traders said the market's reaction to the news was limited.
"It's not outside the realm of possibility that the fed funds rate could stay at zero for the next couple of years," said Janet Yellen, president of the San Francisco Fed, given prospects for a very slow recovery marked by high unemployment. ($1=96.81 Yen) (Additional reporting by Aiko Hayashi; Editing by Michael Watson)