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FOREX-Euro edges up ahead of inflation test, sterling supported

* Euro holds firm after solid performance overnight

* ECB officials play down QE expectations

* Sterling consolidates after hitting 4-1/2-year high

* Asian session subdued with Japan shut for holiday (Updates prices)

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, April 29 (Reuters) - The euro held firm against the dollar on Tuesday after a solid performance the day before as expectations for additional stimulus from the European Central Bank waned.

The common currency rose 0.1 percent to $1.3862, having pulled up from Monday's intraday low near $1.3815. The euro also rose 0.1 percent to 142.10 yen, well above a one-week low of 140.99 yen that had been set on Monday.


Moves among major currencies were muted in Asia, as a public holiday in Japan dampened trading activity.

A source said ECB President Mario Draghi had told German lawmakers the central bank was still a long way off from implementing a bond-buying programme even in the face of persistently low inflation.

Sounding a similar tune, ECB Vice President Vitor Constancio told reporters in Frankfurt that April's inflation figures due later this week should not alone trigger a policy change.

Still, traders said any downside surprise in the inflation numbers will weigh on the euro, especially since the market is positioning for a pick-up in price pressure.

German inflation figures are due later on Tuesday, ahead of the euro zone number on Wednesday.

"If the German price data fails to show any improvement, this would immediately raise expectations for an ECB easing as soon as May 8, and hurt the euro," analysts at BNP Paribas (Milan: BNP.MI - news) wrote in a note to clients.

Traders said ongoing tensions in Ukraine were creating some volatility in the currency market.

The United States on Monday slapped fresh sanctions on Russian firms and government officials, while its European allies are wrangling over how to follow suit without badly hurting their own economies.

Sterling held steady at $1.6814, taking a breather in the wake of its rally to a fresh 4-1/2-year high of $1.6858 on Monday, when it gained a boost from the prospect of M&A flows.

U.S. drugmaker Pfizer (NYSE: PFE - news) confirmed on Monday it wanted to buy AstraZeneca (NYSE: AZN - news) in a deal that could value its smaller British rival at more than $100 billion.

The dollar held steady at 102.50 yen, having inched away from a one-week low of 101.96 yen set late last week.

The dollar managed to gain a bit of ground on the yen as U.S. Treasury yields edged up on the back of upbeat U.S. housing numbers.

Traders said investors were generally wary of taking aggressive positions ahead of major events later this week.

Policy reviews by the Federal Reserve and Bank of Japan as well as U.S. non-farm payrolls are likely to play a pivotal role in shaping the market's short-term outlook.

The Bank of Japan is widely expected to keep monetary policy unchanged at its policy decision on Wednesday, and to hold off from any additional monetary easing.

The BOJ is set to lay out projections underscoring its conviction that inflation will head steadily towards its 2 percent target, suggesting it has no plans to expand stimulus any time soon despite some headwinds to growth.

Such a stance by the BOJ has likely been factored in by the market and probably won't trigger any big reaction in the yen or Tokyo shares, said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

"I think the risk of a rise in the yen is rather small," Okagawa said, referring to the possible market reaction to the BOJ policy meeting, adding that U.S. jobs data on Friday was likely to be more crucial.

Market expectations for any imminent monetary easing by the BOJ have receded recently, as BOJ Governor Haruhiko Kuroda has steadfastly stuck to a view that inflation in Japan is firmly on a path to reach the BOJ's target of 2.0 percent. (Editing by Jacqueline Wong)