* Dollar steadies against yen, euro, franc after overnight drop
* N.Korea a worry but market also focuses on US policies
TOKYO, Sept 5 (Reuters) - The dollar steadied on Tuesday after investors took in the latest headlines on tensions in the Korean Peninsula before turning their focus towards U.S. monetary and fiscal policies.
The U.S. currency was flat at 109.780 yen. It slid to 109.220 the previous day in a knee-jerk reaction to North Korea's hydrogen bomb test on Sunday.
The euro was flat at $1.1895, edging away from Monday's high of $1.1922.
"The market looks to have already priced in North Korea's nuclear test. While caution towards the North conducting another missile launch is limiting the dollar's upside, at least the market can be mentally prepared for it," said Yukio Ishizuki, senior currency strategist at Daiwa Securities.
South Korea's defence ministry said on Monday it was still seeing signs that North Korea plans to launch more ballistic missiles.
"Meanwhile, there will be other factors this month that could ultimately support the dollar, such as the Federal Reserve's policy meeting and upcoming discussions over the U.S. debt ceiling," Ishizuki at Daiwa Securities said.
The U.S. Treasury Department has a Sept. 29 deadline to raise the debt limit, a legal cap on how much the U.S. government is allowed to borrow.
Only the U.S. Congress can raise the debt limit and expectations have risen that the ceiling would not affect Federal efforts to clean up after Hurricane Harvey.
The dollar index against a basket of six major currencies was steady at 92.630 after losing 0.2 percent the previous day.
The Swiss franc was a touch weaker at 0.9585 franc per dollar after jumping 0.7 percent the previous day following North Korea's nuclear test.
The Australian dollar was up 0.1 percent at $0.7948 after the risk aversion that gripped the broader markets overnight pulled it off a one-month high of $0.7997 set on Friday. (Reporting by Shinichi Saoshiro; Editing by Eric Meijer)