A close-quarters brawl or fight conducted with hands and fists rather than weapons, or a convenient combat situation.
Compound of 'handy' (convenient, near at hand) and 'fight' (Old English 'feohtan'), possibly dialectal or obsolete.
This word captures an Old English tendency to describe combat by location or method—we still say 'fistfight' and 'knife fight,' but 'handyfight' didn't survive because 'fistfight' was more vivid and specific.
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