By Naomi Tajitsu LONDON (Reuters) - The dollar edged up against the yen on Tuesday, correcting steep gains made the previous day as Japan's finance minister backtracked over its tolerance of a stronger yen. The U.S. currency clawed back from an eight-month low hit against its Japanese counterpart on Monday, but gains were limited as markets still saw room for the yen to rise. Japanese Finance Minister Hirohisa Fujii on Tuesday said he would not rule out taking action if currency moves were irregular but that not promoting a weak currency was the correct policy. He spoke after backtracking on Monday from remarks suggesting he was comfortable with recent yen strength but markets were generally unconvinced. "(Fujii's) comments today added some apprehension in the market about the dollar/yen's slide, but the trend in the pair remains downward," said Jane Foley, currency research director at Forex.com in London. By 1130 GMT, the dollar was up 0.4 percent at 89.93 yen, after briefly recovering above 90 yen. The pair hovered around levels at which options are expected to expire later in the day. Around $250 million in options with a strike price of 90 yen will tick over at the New York cut, IFR reported, as will $200 million each at 90.20 and 90.30. Market players may still attempt to push the dollar toward January's 13-year low of 87.10 yen and only then think seriously about the possibility of intervention, analysts say, though many say a drop through 85 yen would more likely be needed. The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, edged up 0.1 percent to 77.152 .DXY. The euro fell more than half a percent to a two-week low around $1.4538 as short-term players unwound some euro-buying/dollar-selling positions. The pair pulled further away from a one-year high of $1.4845 hit last week on electronic trading platform EBS. EURO SLIDES Traders brushed off data showing euro zone economic sentiment improved slightly more than expected in September, to 82.8 from 80.8 in August versus forecasts of 82.2. The euro hit a session low against the yen of 130.71 yen, as it was pressured across the board in part due to a near 1 percent tumble against sterling, which rose broadly on the back of a surprising jump in UK sales figures. European Central Bank President Jean-Claude Trichet said late on Monday he backed the argument for a strong U.S. dollar in foreign exchange markets.This sentiment was repeated by ECB Governing Council member Ewald Nowotny. "The dollar comments were stronger than previous commentary and reflect concern regarding the impact of a stronger euro on the euro zone economic recovery," said Geoffrey Yu, currency analyst at UBS.

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