FOREX-Dollar holds steady as world stock markets fall

* Euro rebounds from five-month low vs dollar, above $1.35

* Major currencies trade sideway as stock markets decline

* Trading volume muted on Japanese holiday (Updates market action, changes byline, dateline, previous LONDON)

By Richard Leong

NEW YORK, July 21 (Reuters) - The U.S. dollar held steady against major currencies on Monday as investors reduced holdings of stocks and other risky assets on anxiety about escalating violence in Gaza and Ukraine.

Demand for traditional safe-haven yen and Swiss francs persisted but it was not strong enough to push their values out of their recent trading ranges against the dollar, as traders have been assessing whether the fighting in these regions would affect the global economy, analysts said.

Volumes were light due to a holiday in Japan.

"There doesn't seem to be a bearish sentiment on the real economy yet," said Sebastien Galy, currency strategist at Societe Generale (Paris: FR0000130809 - news) in New York.

The dollar index edged up 0.06 percent at 80.575 after hitting a four-week high last Friday.

The greenback was a tad lower against the yen at 101.27 yen with benchmark yields hovering at their lowest in over seven weeks. The dollar also slipped against the Swiss franc , last trading at 0.8982 franc.

The euro recovered against the dollar despite a sell-off in European shares. It traded steady at $1.3522, well above Friday's five-month low of $1.3491. Support is seen at $1.3460/80, an area that has provided a floor on several occasions in the past 10 months or so.

"There might be a temptation for the market to probe those lower levels," Galy said.

Wall Street shares were broadly weaker with the Standard & Poor's 500 index losing 0.6 percent in early trading. (Additional reporting by Anirban Nag in London and Ian Chua in Sydney; Editing by James Dalgleish)