* Yen edges up on profit taking after risk rally
* Euro little changed, hovers near year's high vs dollar
* Sterling rallies after strong UK services PMI
(Adds details, updates prices)
By Naomi Tajitsu
LONDON, Aug 5 (Reuters) - The yen edged up on Wednesday as traders locked in profits from gains in currencies perceived to be higher-risk, while the euro hovered below its strongest level of 2009 hit against the dollar early in the week.
The dollar was little changed against a currency basket as the safe-haven U.S. currency found its footing after plumbing its weakest level of the year on Monday due to escalating risk demand, but risks were seen tilted in favour of more selling.
Sterling clocked a nine-month high versus the dollar on strong UK services sector data, but overall, investors were hesitant to take on big positions before policy decisions by the European Central Bank and the Bank of England on Thursday, which may offer more clues on their plans for quantitative easing.
"A lot of objectives in cross/yen have been reached," said Neil Jones, head of European hedge fund sales at Mizuho Corporate Bank in London, noting that the Australian dollar had breached 80 yen, while sterling/yen has rallied above 160 yen.
"As a result we're seeing some profit taking," he said.
The euro offered limited reaction to purchasing managers' indices for euro zone services sectors, which generally showed improvement in July.. Traders also brushed off a bigger-than-expected fall in retail sales in the region in June.
At 0946 GMT, the euro slipped a touch to $1.4385, but stayed near $1.4445 hit on Monday, its strongest since December.
Against the yen, the euro slipped 0.1 percent to 136.95 yen, retreating from around 137.70 yen hit on Tuesday, its highest in nearly two months.
The dollar was down 0.1 percent at 95.15 yen.
The pair barely budged after comments from China's central bank on Wednesday said it would keep a close eye on currency moves and make the yuan more flexible.
The dollar index was flat at 77.752, not far from 77.451 hit on Monday, its lowest since September.
ONGOING RISK DEMAND
The higher-risk Australian and New Zealand currencies each fell roughly 0.4 percent against their Japanese counterpart, with the New Zealand dollar retreating from 64.35 yen hit earlier in the day, its highest level of the year.
Sterling rose to $1.7008, its highest since October, on the back of a rise in UK services PMI to 53.2 in July, which exceeded expectations and showed further expansion.
The UK currency recovered early losses against the yen to rise 0.2 percent to 161.60 yen, staying near a two-month high above 162 yen touched on Tuesday.
European shares rose 0.4 percent, staying near a nine-month high hit on Monday. The view that the worst of the global economic downturn is over would support stocks and keep dollar-selling pressure intact, analysts said.
"It's still so much about risk appetite," said Carl Hammer, currency strategist at SEB Bank in Stockholm. "In the coming week or two we may see another bout of dollar weakness."
Investors awaited the ADP report on U.S. employment in July due at 1215 GMT, which is seen as a prelude to the high-profile non-farm payrolls on Friday. Expectations are for 345,000 job losses last month, less than 473,000 in June.
Also due in the New York session is the U.S. ISM non-manufacturing survey for July, due at 1400 GMT. (Editing by Stephen Nisbet)