* Yen steady to higher against major currencies
* Australian dollar inches up before rate decision
* Focus on interest rates and risk appetite
By Masayuki Kitano
TOKYO, Feb 3 (Reuters) - The yen was steady to higher against major currencies on Tuesday, with risk appetite subdued due to worries about the global financial sector and a deepening recession around the world.
The Australian dollar inched up against the dollar and yen, as investors braced for Australia's central bank to cut interest rates by one percentage point to a record low of 3.25 percent later on Tuesday.
While the Australian dollar could rise in the near term if the Reserve Bank of Australia were to cut rates less than expected in a decision due at 0330 GMT, any gains would likely be short-lived, traders said.
"Economies around the world are doing poorly, and I think interest rates are set to converge at levels near zero," said a senior trader for a major Japanese trading house.
In this environment, currencies of countries that still have relatively high rates and more room to lower them are likely to come under pressure, the trader said.
The dollar was steady at 89.42 yen compared with late U.S. trading on Monday, staying off a 13-½ year low of 87.10 yen hit in January.
The euro slipped 0.1 percent to $1.2833.
U.S. data released on Monday showed that U.S. consumer spending was depressed in December, and underscored the U.S. economy's woes.
But there were some slightly positive signs in data showing that U.S. factory activity contracted at a slower pace in January. A trader for a Japanese bank said yen buying lost some momentum on Monday following the release of the Institute for Supply Management data.
The yen is regarded as a safe haven currency as Japanese banks' losses from the credit market turmoil have been limited compared to their U.S. and European peers, and it tends to fluctuate in line with perceived shifts in risk appetite.
The Australian dollar rose 0.1 percent to $0.6319 and was steady at 56.50 yen.
The Australian dollar hit a three-month low of 55.51 on Monday and a fall to below 55.11 yen would take the currency to a record low against the yen. Risk appetite has been fragile due to the global economic recession and concerns about the health of the financial sector.
Sterling sank across the board on Monday after a ratings downgrade on Barclays deepened worries over Britain's financial sector and stoked speculation the Bank of England may lower rates by more than expected on Thursday.
Sterling slipped 0.2 percent to $1.4234 and fell 0.4 percent to 127.19 yen. (Editing by Brent Kininmont)