* Broad rally in dlr, yen back on track; risk-trade fades
* Aussie dollar selling drags yen crosses lower
* Euro zone service sector decline slows in January
* Jitters set in ahead of ECB, BoE and U.S. jobs data
(recasts, changes dateline, byline, adds quotes, updates prices PVS TOKYO)
By Veronica Brown
LONDON, Feb 4 (Reuters) - The dollar and yen picked up steam again on Wednesday, with investors calling time on brighter market sentiment prompted by stronger than expected U.S. housing data the previous day, allowing caution to seep back in.
Heavy selling of the perceived higher-risk Australian dollar versus the yen dominated activity early in London, dragging other yen crosses down, with traders citing large volume options-related activity.
Adding to the Australian unit's woes, a government timetable to speed cash payments from a $27 billion stimulus package was thrown into doubt on Wednesday with a hostile parliament threatening to delay economic stimulus measures.
Analysts said that stimulus packages from the United States, Japan and Australia plus slightly more robust U.S. pending homes sales and manufacturing data had provided a boost to market sentiment and attitudes towards risk.
But that did not make a significant dent in overriding concerns about the banking system and global economy.
"We've had quite a few bits and pieces of risk-positive news over the past 48 hours and the risk-takers have thought that's probably about as much as the market is going to get over the next few days," said Geoffrey Yu, currency strategist at UBS in London.
"The positive stream of information has pretty much dried up," he added.
By 0910 GMT, the dollar index, which tracks the U.S. unit against a basket of currencies, was up 0.2 percent on the day at 85.190 after falling more than 1 percent on Tuesday as hopes for fresh stimulative economic packages in the United States sapped demand.
The Australian dollar shed 1.7 percent against the U.S. dollar to $0.6414, fuelled largely by sharp falls in the Aussie versus the yen. It was last quoted at 57.13 yen, down around 1.7 percent on the day.
Yen strength took the euro down 0.7 percent to 115.52 yen, while the dollar eased 0.2 percent to 89.05 yen.
The single currency was down half a percent against the dollar at $1.2974, while sterling lost 0.5 percent to $1.4389.
Data released earlier showed deterioration in the euro zone's dominant services sector slowed slightly in January, but still remained deeper than expected.
INVESTORS BRACED
Analysts said investors were positioning for a number of risk events this week including U.S. labour market figures and interest rate decisions from the European Central Bank (ECB) and the Bank of England (BoE).
The ECB is widely expected to take a break in its rate cutting cycle, with fresh easing expected next month.
"There are worries that the euro zone economic deterioration will further deepen as its interest rate cutting has been slow compared with other major countries," said Jun Kato, deputy general manager at Shinkin Central Bank.
"The ECB will have to resume rate cutting (after keeping rates steady in February), considering the status of the economy in the area," he said.
The Bank of England's interest rate verdict is also scheduled for Thursday, and the central bank is expected to cut interest rates by a half percentage point to 1.0 percent to mark a new historic low, according to a Reuters poll.
(Additional reporting by Kaori Kaneko in Tokyo)
(Reporting by Veronica Brown; Editing by Andy Bruce)