FOREX-Yen underperforms as risk sought, euro steadies

* Yen stays weak, stock mkt bounce helps riskier currencies

* Political uncertainty also weighing down on yen

* Euro manages to trade above $1.22, but sentiment bearish

By Anirban Nag

SYDNEY, June 3 (Reuters) - The yen was under pressure on Thursday, extending the previous session's losses, as a strong rebound in stock markets lent support to higher-yielding currencies, and even to the floundering euro.

In Asian trade, the U.S. dollar climbed to 92.20 yen , from 92.10 yen late in New York on Wednesday when it gained 1.2 percent to hit a two-week high of 92.36 yen. Near term resistance is seen at 92.96 yen, the daily high hit on May 18.

Traders said political uncertainty was also playing a role in the yen's sharp reversal this week. [ID:nTOE65100Q]. Japanese Prime Minister Yukio Hatoyama resigned on Wednesday, stoking speculation that his likely successor would take a tougher stance to fight the yen's strength.

Finance Minister Naoto Kan is tipped to be the successor. 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.

Since then he has mostly toed the Ministry line that stable currencies are desirable and markets should set foreign exchange levels.

There were also signs that the yen could return as a funding currency for carry trades.

"That the yen has not been able to make serious gains against the dollar in a most favourable negative risk environment will encourage the market to put the yen in line as a funder, albeit after the euro," Alan Ruskin, strategist at RBS wrote in a note.

The U.S. dollar found support from upbeat domestic data, including numbers released on Wednesday which showed pending sales of previously owned homes topping expectations.

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. 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 was steady on the yen at 112.72 yen, having jumped over 1.3 percent on Wednesday. Against the dollar, the euro was steady around $1.2240, 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 , a barometer for short term fear among speculators and hedge funds, are still showing an extreme bias for puts, sitting at 3.05.

The euro remains sensitive to any signs the euro zone sovereign debt crisis might spread to the banking system.

The Australian dollar held on to smart gains made on Wednesday. It traded above $0.8400, with resistance seen at $0.8436, the daily high hit on June 1.

Traders said better appetite for risk was helping the Aussie and the Canadian dollar . (Editing by Wayne Cole)