TOKYO -- The dollar was steady against major currencies in Tokyo on Monday but investors were largely sidelined ahead of the first anniversary of September 11, dealers said.

The dollar traded at 118.43-46 yen at 2:00 P.M.

(0500 GMT), compared with 118.46-49 yen in New York and 118.27-31 yen in Tokyo late Friday.

The dollar might see gains, particularly against the yen, if fears that anniversary terror attacks would be launched prove unfounded, although worries the United States might start a war on Iraq would continue to keep the market on edge, AFP quoted dealers as saying.

The euro bought 0.9815 dollars around 2:00 P.M., against 0.9817-20 dollars in New York and 0.9917-21 dollars in Tokyo late Friday.

Against the yen, the euro was quoted at 116.21, compared with 116.26 in New York and 117.46 in Tokyo Friday afternoon.

"People are refraining from having big positions ahead of September 11 and some are expecting a relief rally afterwards," said Minori Takeuchi, foreign exchange analyst at the Tokyo branch of JP Morgan Chase.

Sentiment on the yen remained negative due to concerns over the Japanese banking sector, although the Tokyo stock market and yen were being supported near term, partly due to expectations of fresh government action, she said.

"Foreign investors have a negative view of the yen because of the effect of the (recently weak) Nikkei on the banks," Takeuchi said.

The benchmark index of the Tokyo Stock Exchange fell to the lowest levels in 19 years last week, although it advanced by 2.3 percent Monday morning.

"The banks need to reduce huge risk assets and, if they do this, they have to stop lending and we will have a lot of corporate bankruptcies," Takeuchi said.

The euro appeared to have a brighter outlook against the dollar, with speculation the European Central Bank (ECB) might cut interest rates before the U.S. Federal Reserve, given weak data on the continent, she said. "The ECB is not likely to move this week (but it) looks like the possibility is higher of an ECB rate cut ahead of the United States," Takeuchi said, despite comments by ECB President Wim Duisenberg over the weekend that the Central Bank's interest rates were "appropriate for the time being."

In Singapore, the euro was weaker against the dollar for technical reasons, with the market cautious ahead of a speech by U.S. President George W. Bush later this week which is expected to make the case for a military invasion of Iraq, dealers said.

"The market is awaiting the outcome of Bush's speech on Iraq," a dealer with BNP Paribas said.

Bush is scheduled to appear before the UN General Assembly on Thursday to explain why the U.S. believes military action to oust Iraqi President Saddam Hussein is necessary.