FOREX-Yen underperforms as risk sought, euro edges up

                                
 * Yen stays weak, stock mkt bounce helps riskier currencies
                                
 * Some yen selling on view Finmin Kan to be next Japan PM
                                
 * Euro manages to trade above $1.22, but sentiment bearish
                                
 By Kaori Kaneko
                                
 TOKYO, June 3 (Reuters) - The yen lost ground for a second
day on Thursday, as a strong rebound in stock markets lent
support to higher-yielding currencies and even to the
floundering euro.
                                
 Non-Japanese investors were particularly active in trimming
short positions in yen crosses before U.S. non-farm payrolls
data on Friday that is expected to show a fifth straight month
of gains in May, market players said. [ID:nN01175887]
                                
 "The market is oddly calm about the euro now despite the
fact that the euro zone debt situation remains severe. The
focus is shifting to whether the U.S. economic recovery is
something tangible and solid enough to offset Europe's negative
impact on the global economy," said a senior forex sales
manager at a European bank.
                                
 The dollar edged up 0.2 percent to 92.30 yen <JPY=> from
late in New York on Wednesday, but struggled to climb above
that level, which is a 61.8 percent retracement of its May drop
to 87.95 yen from 94.99 yen. On Wednesday, it gained 1.2
percent to hit a two-week high of 92.36 yen. Near term
resistance is seen at 92.97 yen, a high hit on May 18.
                                
 The dollar found support from upbeat U.S. data, including
numbers released on Wednesday which showed pending sales of
previously owned homes topping expectations.
                                
 But gains in the greenback during Asia trade were limited
as Japanese exporters were selling the currency above 92.00
yen, traders said.
                                
 There was speculation in the market that Japan's next prime
minister would take a tougher stance in fighting the yen's
strength, with investors taking this as an excuse to trim yen
long positions. [ID:nTOE65100Q].
                                
 Finance Minister Naoto Kan is tipped to succeed unpopular
Prime Minister Yukio Hatoyama who said on Wednesday he was
resigning.
                                
 Kan surprised markets earlier this year by saying he wanted
the yen to weaken more and that most businesses favoured a
dollar/yen rate around 95 yen. But since then he has mostly
toed the ministry line that stable currencies are desirable and
markets should set foreign exchange levels.
                                
 Against the Japanese currency, the Australian dollar rose 1
percent to 78.41 yen <AUDJPY=R>, breaking clearly above the
38.2 percent retracement of April's high above 88.00 and May's
low of around 71.90 yen.
                                
 The euro rose 0.7 percent to 113.65 yen <EURJPY=R>, having
jumped more than 1 percent on Wednesday. It tested near term
resistance for the pair at 113.67 yen, which was last week's
high.
                                
 Japanese investors continued to pick up overseas bonds in a
bid for higher yields elsewhere as domestic bond yields remain
very low, buying a net 1.2 trillion yen ($29 billion) of
overseas bonds last week, the most since September. [JP/CAP]
                                
 Japan's Fukoku Mutual Life Insurance told Reuters on
Wednesday it plans to boost its overseas debt holdings
including unhedged foreign bonds by 75 billion in the year to
next March as it seeks better investment returns. [JP/INT]
                                
 Analysts expect U.S. payrolls figures on Friday to show
513,000 jobs were added to the economy in May, which could give
the greenback a boost. <ECONUS>
                                
 That would bolster expectations that the Federal Reserve
will be first to raise rates ahead of the European Central Bank
and the Bank of Japan.
                                
 The euro <EUR=> climbed 0.5 percent to $1.2312, having
bounced from a four-year low of $1.2110 on Tuesday.
                                
 Despite the bounce overall sentiment towards the single
currency remains bearish. One-month 25 delta risk reversals
<EUR1MRR=ICAP>, a barometer for short-term fear among
speculators and hedge funds, are still showing an extreme bias
for puts, sitting at 2.55/3.05.
                                
 The euro remains sensitive to any signs the euro zone
sovereign debt crisis might spread to the banking system.
                                
 The Australian dollar <AUD=D4> gained 1 percent to $0.8500.
                                
 Traders said better appetite for risk was helping the
Aussie and the Canadian dollar <CAD=>.
 (Additional reporting by Anirban Nag in Sydney, Rika Otsuka
and Satomi Noguchi in Tokyo and Reuters FX analyst Rick Lloyd;
Editing by Edwina Gibbs)