The dollar eased slightly on Tuesday, inching closer to a two-month low versus the euro hit last week as investors continued to cut long positions on more disappointing U.S. economic data.

The greenback rose a little against the yen on bids from Japanese importers, but was still within striking distance of a seven-month low marked last week, leading many market players to look to what authorities in Japan could do about a firm yen.

The market was looking to a press conference by Finance Minister Yoshihiko Noda for clues on Japanese policymakers' pain threshold .

I guess the authorities will be nervous. There will be verbal intervention or they might do rate-checks as they did before. But I don't think they can do actual intervention, said a trader at a Japanese financial institution.

In Asian trade, the dollar rose about 0.4 percent to at 87.01 yen JPY=, having hit a seven-month low of 86.27 on trading platform EBS on Friday.

Traders said Japanese importers, back from a long weekend, bought the dollar to take advantage of its fall since Friday.

Traders suspect Japanese officials would not want to see the 85 level breached in a hurry. But low U.S. Treasury yields are likely to keep the greenback under pressure, as they dent the allure of investment in the dollar.

Indeed, traders say they saw marginal yen-selling from Japanese investors.

Japanese investors' risk appetite hasn't come back. They are not ready to sell the yen yet. It's hard to expect upside for the dollar/yen, said a trader at a European bank.

Demand for the dollar waned further on Monday after the NAHB/Wells Fargo Housing Market index fell more than expected in July to its lowest level since April 2009, after a popular tax credit for homebuyers expired in April.

The report was the latest in a string of data that has flashed warnings about the state of the U.S. economy and quashed expectations of a Federal Reserve interest rate hike this year.

If the Federal Reserve Chairman Ben Bernanke drops any hint of further easing at a testimony on Wednesday, that could push the dollar further, some traders said.

The overall bearish setup remains intact for dollar/yen, JPMorgan said in a morning report. This follows last week's breakdown below the key 87.00/22 yen support zone while affirming the intermediate term bearish setup and a closer test of the 84.82 November 2009 cycle low.

The euro EUR= edged up 0.15 percent to $1.2963/64, not far from a two-month high of $1.3008 hit last Friday.

Traders expect the pair to trade in a $1.28-1.31 range in coming days ahead of the EU stress test results, and Fed chief Ben Bernanke's testimony.

Support for the euro is seen around the previous day's low of $1.2870 while resistance comes in at Friday's high of $1.3008.

The results of stress tests on 91 European banks are due on Friday and there is a consensus building in the forex market that it could be positive for the euro.

Bankers and officials in Greece, Spain and Belgium joined a chorus of countries expecting their banks to pass European stress tests, but doubts linger over whether the health checks are tough or transparent enough.

But some traders suspect the euro could be in for a buy-on-rumor-sell-on-fact type of retreat, after having risen nearly 10 percent from a four-year low hit in early May, mostly shrugging off negative news on the euro zone.

It brushed aside news that Moody's cut Ireland's debt rating and concerns that negotiations between Hungary and international lenders had broken down.

Meanwhile, the Aussie AUD=D4 rose 0.9 percent to $0.8760 and 1.1 percent to 76.22 yen AUDJPY=, helped by an upbeat mood in Chinese share markets and wariness about Japanese yen-selling intervention.

The Austrian dollar quickly recovered the ground it had lost after minutes from the Reserve Bank of Australia's (RBA) July policy meeting that suggested it was unlikely to raise interest rates next month if coming inflation data showed the moderation it expected.

The currency has a strong support around $0.8575-8590, where there is a 50 percent retracement of its rally this month as well as a cluster of previous lows. (Reporting by Hideyuki Sano; Editing by Joseph Radford)

Ben Bernanke Japan