* 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.
"The market has digested all positive factors that have come out and is starting to react more to negative factors," said Masafumi Yamamoto, head of FX strategy Japan at Royal Bank of Scotland. "The market is lacking clear direction and is likely to stay in an adjustment period for now."
The dollar index, which measures the dollar against a basket of six currencies, was up 0.1 percent at 80.221.
The euro was little changed from late U.S. trade at $1.4027 after falling as low as $1.4000 on trading platform EBS.
The dollar rose 0.5 percent to 96.87 yen after climbing to 97.00 yen for the first time in nearly two weeks.
"Investors are a bit cautious about chasing the dollar higher 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 135.91 yen, while the Australian dollar climbed 0.4 percent to 77.94 yen.
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 has shed 363,000 jobs in June after losing 345,000 in May.
San Francisco Federal Reserve Bank President Janet Yellen said on Tuesday that the U.S. recession is likely to end later in 2009, ushering in a "frustratingly slow" recovery marked by continued high unemployment.
Yellen also said the U.S. central bank can use "every bullet" in its arsenal to boost the economy without much fear of kicking up inflation because of the huge output gap.. (Editing by Joseph Radford)