* Yen steady vs USD, stays below recent three-week high
* Markets still keeping a close eye on Syria
By Masayuki Kitano
SINGAPORE, Aug 29 (Reuters) - The safe-haven yen held steady versus the dollar on Thursday after setting a three-week high the previous day due to jitters over the possibility of Western military action in Syria.
The yen had surged earlier in the week as investors scrambled for safety amid heightened geopolitical tensions. That had sent the dollar down to a low of 96.81 yen on Wednesday, the greenback's lowest level versus the yen since Aug. 12.
The dollar later gained some reprieve versus the yen, and last stood at about 97.63 yen, steady from late U.S. trade on Wednesday.
A bounce in risky assets helped to support the dollar against the yen, with Asian shares rising 1 percent .
The greenback, however, was capped versus the yen due to dollar-selling by Japanese players, said a trader for a European bank in Tokyo, adding that there seemed to be some dollar-selling by Japanese exporters ahead of the month-end.
The Australian dollar rose 0.3 percent to $0.8972. Against the yen, the Aussie dollar rose 0.4 percent to 87.57 yen .
Market sentiment still remained cautious, given the possibility of a Western military strike against Syria.
President Barack Obama made the case on Wednesday for a limited military strike against Syria in response to last week's chemical weapons attack, even as he faced new obstacles with British allies and U.S. lawmakers that could delay any imminent action.
"We assume that NATO military action is still the likely scenario even if relatively limited in scope. Until there is more clarity, our bias is to keep positioning low at the moment," strategists at BNP Paribas wrote in a note.
The euro eased 0.1 percent versus the yen to 130.17 yen . Against the dollar, the single currency held steady at about $1.3335.
Overall, the recent moves in major foreign exchange pairs have been modest compared to the sharp and damaging moves in emerging market currencies.
First hit by outflows of funds as investors positioned for an eventual end of easy money from the U.S. Federal Reserve, emerging market pain has been exacerbated as heightened geopolitical risks made investors even more risk adverse.
Combined with local policy missteps, the poisonous mix saw currencies such as the Indian rupee and Turkish lira hit record lows versus the dollar this week.
The Indian rupee gained some reprieve on Thursday, however, after India's central bank said on Wednesday it would supply dollars to oil companies through a separate window in its latest attempt to shore up the rupee.