With the euro, 87 cents was proving challenging, as being the level where the Group of Seven (G7) rich nations first intervened last month.

And dealers were on guard in case the European Central Bank (ECB) sprang a surprise rate hike at its policy meeting later on Thursday.

All of which left the dollar hesitating at 109.13 yen in late trade, having backed off seven-week highs at 109.43 reached in New York. The euro was holding at $0.8742 after posting a week-low around $0.8714 in New York and was steady on the Japanese currency at 95.41 yen against 95.54 in the late US trading.

The yen was weighed by data showing spending by Japanese households fell a steep 4.1 per cent year-on-year in August.

That reinforced the impression, given by the key quarterly "Tankan" survey of business sentiment earlier in the week, that consumer demand had failed to pick up and might even stir speculation of economic contraction in July-September GDP. Still, the dollar failed to make much of the figures, with dealers more intimidated by the size of option-related and Japanese exporter offers above 109.50 yen. The Tankan also showed Japanese firms expected an average dollar/yen rate of 104.18 in the second-half of the fiscal year, so selling the dollar forward at present levels was, as one trader put it, "gravy to them".

Dealers conceded that technical factors favoured the dollar after it breached 109.10 yen, the top of a triangle formation stretching back to January. According to the textbooks, that could yield a rally worth 10 yen or more. However, they noted the books said the same thing back in August and the dollar did not even make it past 109.60.

(Reuters)