* Weak U.S. service sector, labour data weigh on greenback
* Yen helped by Japanese media report on BOJ policy options
TOKYO, Sept 7 (Reuters) - The yen gained on Wednesday after downbeat U.S. economic data made a U.S. interest rate increase this month unlikely, prompting investors to trim their dollar bets and triggering stop-loss orders in early Asian trade.
The dollar was down 0.5 percent at 101.50 yen JPY= after dipping as low as 101.245 earlier, its lowest since Aug. 26 and well below last Friday's high of 104.32 yen. It tumbled more than 1 percent against its Japanese counterpart on Tuesday.
The Institute for Supply Management's non-manufacturing purchasing managers' index fell to 51.4 last month, far short of economists' expectations and the largest one-month drop since November 2008, giving the U.S. Federal Reserve reason to delay increasing interest rates. Federal Reserve's labour-market conditions index also fell in August, slipping back into negative territory after a positive reading in July.
Also bolstering the yen was the Sankei newspaper's report saying Bank of Japan policymakers were divided ahead of the central bank's Sept. 20-21 meeting, at which BOJ Governor Haruhiko Kuroda has said the board will conduct a comprehensive assessment of its massive stimulus programme.
"BOJ policy members are divided between those who support negative interest rates, prioritising government bond purchases, and others who oppose additional easing measures," said Shinichi Kashiwagi, head of market sales for Japan at National Australia Bank in Tokyo, noting the paper's report.
The BOJ will refrain from accelerating money printing or deepening negative rates this month as improvements in the economy make it hard to justify again deploying "bazooka"-like big stimulus, Kazuo Momma, who oversaw the bank's monetary policy drafting and global affairs until May, told Reuters on Tuesday. euro skidded 0.6 percent to 114.20 yen EURJPY= but was steady on the day against the dollar at $1.1250 EUR= .
The dollar index, which tracks the greenback against a basket of six major rivals, edged down to 94.783 .DXY , not far from its overnight low of 94.767, its deepest nadir since Aug. 26.
The Australian dollar AUD=D4 edged down 0.1 percent to $0.7681 after rising more than 1 percent on Tuesday after the Reserve Bank of Australia held interest rates steady at 1.5 percent.