* Dollar index flat; dlr down 0.5 percent vs yen at 94.41 yen
* Yen hits 7-week highs vs dollar and euro
* Market awaits start of U.S. Q2 corporate earnings season
* G8 draft statement: risks remain to economic stability
(Adds quotes, updates prices)
By Tamawa Desai
LONDON, July 8 (Reuters) - The dollar was steady while the yen climbed on Wednesday as uncertainty about the global economic outlook reined in investor risk-taking.
Recovery doubts have helped pull currencies such as the Australian dollar, sterling and the euro well off peaks hit in June, and the dollar and yen have risen in the past few weeks.
The yen hit its highest levels in around seven weeks against the dollar and euro on Wednesday, as short-term players unwound risk trades ahead of the start of second quarter U.S. earnings, which kicks off with Alcoa Inc later in the day.
"The sharp fall in the cross yen pairs is reflecting speculators closing long positions in risk assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
"There is very little clarity on the global outlook, and there is uncertainty over the earnings season."
The euro fell to 130.43 yen, its lowest since late May. By 0919 GMT, it was down 0.7 percent at 131.12 yen.
The dollar hit a six-week low of 94.09 yen, according to Reuters data. Sterling also reached its lowest in more than a month against the yen of around 151.01 yen.
The dollar index, a gauge of its performance against six major currencies, was steady at 80.70
Data on Wednesday showed the euro zone economy shrank by 2.5 percent in the first quarter, unchanged from previous estimates.
The euro was little changed after the data, down 0.1 percent on the day at $1.30-5.
YEN CROSSES
One broker specialising in forex margin trading said Japanese retail traders were selling to unwind long sterling positions in a general sell-off of riskier currencies against the yen. Others said Japanese retail margin activity was focused on buying yen crosses on dips.
They also noted net short-yen positions have surged to levels seen before the collapse of Lehman Brothers last September, indicating cross yen pairs may see a pick-up after the current correction.
Sterling hit a one-month low against the dollar of around $1.6048 after weak industrial output data the previous day reinforced doubts about a UK recovery.
Sterling's fall came ahead of a Bank of England policy decision on Thursday, where it is expected to keep interest rates at a record low of 0.5 percent and seen expanding its 125 billion pound quantitative easing programme.
UK Prime Minister Gordon Brown told Reuters on the eve of the G8 leaders' summit the immediate concern was getting out of recession and the dangers posed by high oil prices, protectionism and a lack of credit.
Draft statements for G8 leaders and G8 leaders plus G5 emerging market economies had no direct reference to foreign exchange, according to texts seen by Reuters.
"It's normality restored. Heading into this event there was a little risk of dollar weakening. The dollar could move up a little now as risk aversion rises," said Gavin Friend, strategist at National Australia Bank.
Leaders of the G8 economic powers meet later on Wednesday and on Thursday, those leaders plus G5 leaders from countries such as China, India, Brazil and Mexico will also gather.
Chinese President Hu Jintao is flying back to Beijing following rioting in a northwestern region of China and will miss the summit. China has been the main voice for a shift away from the U.S. dollar as the world's main reserve currency. (Editing by Chris Pizzey)