* Traders cover cross/yen shorts, yen loses ground
* Asian shares up, encourages higher yields short-term
By Charlotte Cooper
TOKYO, Aug 20 (Reuters) - The yen slipped on Thursday, extending losses from the previous day as Asian share markets gained, encouraging market players to buy back higher yielding and commodity-linked currencies in the short term.
With volumes thin due to holidays in the northern hemisphere, the market has been choppy in the past week and higher yielding currencies such as the Australian dollar have been sensitive to moves in riskier assets such as stocks and commodities.
The currency market has been watching Shanghai stocks to try to gauge how well China can support economic recovery elsewhere and the stock market has shed nearly 20 percent in the past two weeks, sparking speculation whether this presages fresh economic troubles for the Asian powerhouse.
But the Shanghai index gained 2 percent on Wednesday, while Tokyo's Nikkei average rose 1.6 percent.
One trader said investors were showing appetite to pick up higher yielders against the yen when prices dipped.
"The market condition is not that bad, cross/yen is in a correction stage," the senior trader at a European bank said.
"But it's not over yet. We could see the correction stage in cross/yen and the stock markets continue for another week or so."
The dollar made ground on the yen, rising 0.3 percent to 94.35 yen, after dropping to its lowest in a month at 93.66 the previous day.
Traders said currency price movements have been lacking strong momentum given the fact that many players are still away for summer holidays.
"We are only seeing short-term speculators shorting cross/yen, then covering to take profits," said an options trader at a Japanese bank.
The euro rose 0.4 percent to 134.28 yen after also hitting its lowest in a month on Wednesday in turbulence generated by Shanghai's sharp fall.
High-yielding currencies like the Australian and New Zealand dollars benefited from the better sentiment towards riskier assets.
The Australian dollar climbed 0.3 percent to 78.33 yen and held steady on the day at $0.8305, having gained 0.4 percent on Wednesday.
The New Zealand dollar rose 0.4 percent to 63.68 yen and stood steady at $0.6752.
Both currencies have climbed against the low-yielding dollar and yen this year as stocks have risen, but their rally has stalled since last month.
The dollar index rose 0.1 percent to 78.541 and the euro, which hit an eight-month high this month at $1.4448, was steady at $1.4231, having gained nearly 0.8 percent in the previous session. (Additional reporting by Anirban Nag in Sydney and Satomi Noguchi in Tokyo; Editing by Joseph Radford)