*

US dollar holds firm amid trade tensions with EU

*

Yen softens after wage talks as market weighs BOJ rate

hike

timing

*

Sterling weakens after UK GDP unexpectedly contracts in

January

(Updates with early European trading)

By Yadarisa Shabong and Brigid Riley

March 14 (Reuters) - The yen weakened on Friday after

union wage talks in Japan concluded and the pound edged lower as

UK economic growth faltered, with investors also processing

trade tensions and slowdown concerns.

The Japanese currency, which scaled a five-month peak

earlier this week at 146.545 per dollar on safe-haven bids and

market bets for further rate hikes in Japan, lost some ground to

trade as weak as 149.02 a dollar on Friday.

The dollar was last up 0.7% at 148.955 yen.

Japanese companies agreed to raise wages by 5.46% this year,

topping both last year's preliminary and final figures and is

likely to mark the highest pay hike in 34 years.

"The Rengo figures ... are still short of the more than 6%

figure that the union had been aiming for, which might have

resulted in some JPY longs deciding to square up their

positions," said Michael Brown, senior research strategist at

Pepperstone.

Rengo, the country's largest union umbrella, had sought an

average hike of 6.09% this year.

The data is one important input into the Bank of Japan's

decision making. Economists and markets see the central bank

standing pat at its meeting next week as policymakers gauge

global risks.

Another underperformer on Friday was the British pound after

the UK economy unexpectedly contracted by 0.1% in January.

Sterling was last down 0.17% at $1.29295.

But still, the British currency was not far off its

four-month peak of $1.2990 hit on Wednesday.

PAUSE FOR BREATH

The dollar had started off the week poorly against major

peers but has since bounced back and was on course to end with

some weekly gains.

The dollar index last rose 0.13% to 103.96, on track

for a third straight days of gains, though concerns simmered

about the outlook for the U.S. and broader global economy.

"(I) would liken the greenback's recent rebound more to a

pause for breath, than a particular sign that the dollar is

about to make a significant resurgence," Pepperstone's Brown

said.

Sowing more volatility across markets, U.S. President Donald

Trump threatened to hit imports of wine, cognac and other

alcohol from Europe with a 200% tariff.

The escalating tensions between the traditional allies came

after the EU announced plans to impose levies on American

whiskey and other products next month, itself a response to U.S.

tariffs on steel and aluminium imports.

The euro steadied at $1.0852 after sliding further

off Tuesday's five-month peak the previous day as the EU-U.S.

trade spat rattled markets and Germany struggled to pass a

massive spending proposal.

Hopes of an imminent ceasefire between Ukraine and Russia

were also fading as Moscow said it supported the U.S. proposal

but suggested it would need some serious reworking.

A potential U.S. government shutdown added to uncertainties,

although top U.S. Senate Democrat Chuck Schumer on Thursday said

he would vote to advance a Republican stopgap funding bill,

signalling that his party would provide the votes to avert a

shutdown.

The Australian dollar and New Zealand dollar

firmed as investors awaited a press conference next

week by officials from Beijing's top planning agency for news on

additional stimulus measures to boost the economy.

"That prospect there of some additional stimulus measures

being rolled out in China to try and offset the negative impact

from the tariffs ... is helping to boost sentiment towards those

commodity-related currencies," said Lee Hardman, senior currency

analyst at MUFG.

The Australian dollar gained 0.4% to $0.6307, while the New

Zealand dollar rose 0.5% to $0.5723.