(Updates throughout)

By Joice Alves

LONDON, Sept 3 (Reuters) - The British pound and euro

edged higher on Wednesday, as investors paused to assess the

impact of rising borrowing costs after a surge in bond yields.

Long-dated government borrowing costs from Japan to Britain

touched fresh multi-year highs on Wednesday on nagging concerns

over the fiscal health of some of the world's biggest economies,

although a degree of calm was returning after a sharp sell-off.

Similarly, the pound last traded 0.1% higher at

$1.3409, recouping some of its more than 1% tumble on Tuesday.

Against the euro, sterling flattened at 86.86 pence,

after falling 0.6% on Tuesday.

In the gilt market, Britain's 30-year borrowing costs rose

to their highest levels since 1998.

"Yesterday's rise in EUR/GBP highlights just how sensitive

the pound is to yield increases, but we take a conservative view

and don't expect the pound to fall much further on gilt moves

alone," said Francesco Pesole, FX strategist at ING, adding that

long-dated European bonds were also sold off this week.

Investors will be waiting to hear Bank of England Governor

Andrew Bailey, who is due to answer questions from the House of

Commons' Treasury Committee at 1315 GMT.

Meanwhile, the euro steadied against the dollar at

$1.1651, after falling 0.6% on Tuesday.

A survey showed on Wednesday that the euro zone economy kept

expanding at a snail's pace in August, as weaker services growth

offset improved manufacturing output.

The dollar edged 0.08% lower to 98.30 against a basket of

currencies, having gained 0.66% on Tuesday.

Investors also had their eye on a slew of U.S. labour market

data due this week, headlined by Friday's nonfarm payrolls

report, for more clues on rate cut trajectories.

JAPANESE POLITICS

In Japan, the yen was down 0.2% at 148.68 per

dollar, having slid 0.8% on Tuesday after the ruling party's

Secretary-General Hiroshi Moriyama, a close aide to Prime

Minister Shigeru Ishiba, said he intended to resign.

That could potentially affect the fate of Ishiba, who has

resisted calls to quit over his party's defeat in an upper house

election in July.

"On the surface, political uncertainty, and the possibility

that Prime Minister Shigeru Ishiba might resign in the coming

days or weeks, is having a debilitating impact on the yen," said

Kit Juckes, Societe Generale's chief global FX strategist.

Sanae Takaichi, one of the leading contenders to replace

Ishiba, is known for favouring low domestic interest rates.