* Dollar/yen rises as risk aversion eases, dollar index inches up
* Upbeat U.S. data helps, but lingering trade woes limit USD gains
* Canadian dollar near 7-week high ahead of BoC meeting (Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, April 18 (Reuters) - The dollar edged up on Wednesday, as firm U.S. economic data supported the greenback against the yen and headline risks around U.S.-China trade relations and tensions in the Middle East appeared to take a backseat.
The dollar index against a group of six major currencies was a shade higher at 89.538 after gaining 0.1 percent overnight.
The index had stooped to 89.229, its lowest since March 27 before pulling back on stronger-than-expected March U.S. housing starts and steady industrial production figures.
The greenback found support from economic indicators as the market focused on fundamentals as perceived political risks receded, with Western strikes on Syria not expected to escalate and a lull in major U.S.-China trade-related headlines.
The dollar rose 0.3 percent to 107.295 yen after dipping to 106.885 on Tuesday, buoyed as improving risk appetite reduced demand for its Japanese peer, a currency often sought in times of market turmoil and political tensions.
Japan’s Nikkei tracked Wall Street’s rise and gained more than 1 percent, touching a seven-week peak.
“The dollar could gain even further against the yen if the U.S.-Japan summit ends without big surprises,” said Koji Fukaya, president at FPG Securities in Tokyo.
U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe on Tuesday opened two days of talks at the president’s retreat in Florida.
Japan fears Trump will try to link vital security matters with touchy trade topics, while talks so far between Trump and Abe have largely focused on a prospective U.S.-North Korea summit.
Caution over U.S.-China trade tensions continued to linger in the background, confining currencies to narrow ranges.
“Unless U.S.-China trade issues are resolved and we no longer have to worry about news headlines on the issue, it is difficult to focus on factors like yield differentials and economic data,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
The greenback received a small knock earlier in the week after Trump touched upon the currency policies of China and Russia, before finding relief after Treasury Secretary Steve Mnuchin clarified Trump’s comments on Tuesday.
The euro was little changed at $1.2372.
The common currency rose to a three-week high of $1.2414 on Wednesday but slipped to $1.2336 on a ZEW research institute survey showing German investor morale reached its lowest since November 2012.
The pound was effectively flat at $1.4299, nudged away from a post-Brexit referendum 22-month high of $1.4377 scaled early on Tuesday by weaker-than-expected British wage data.
The markets were still pricing in a more than an even chance of the Bank of England hiking interest rates in May, which had helped sterling advance aggressively this month.
The Australian dollar extended overnight losses and dipped 0.05 percent to $0.7765, having been on the back foot following Tuesday’s lukewarm Chinese economic data.
The New Zealand dollar was lost 0.1 percent to $0.7336 .
The Canadian dollar was at C$1.2570 per dollar and in reach of a seven-week high of C$1.2528 set the previous day ahead of the Bank of Canada’s interest rate decision later on Wednesday.
While the BoC is not expected to raise rates this time, expectations have risen for the central bank to tighten policy as early as next month in light of strong data, and participants will be looking for any hints that could reinforce such views.
The Hong Kong Monetary Authority (HKMA) again intervened in the currency market on Wednesday to keep the Hong Kong dollar at the weak end of its 7.75 to 7.85 trading band.
The Hong Kong dollar has repeatedly weakened to 7.85 per dollar over the past week due to a wide divergence between U.S. and Hong Kong interest rates.
Reporting by Shinichi Saoshiro Editing by Eric Meijer and Sam Holmes