* Euro trims gains made in Thursday's short-covering rally
* Euro/yen dips, some talk of Japanese exporter selling
* Options positioning adds to recent cross/yen swings-trader
* Talk of dlr/yen option expiry at NY cut with Y90.00 strike
By Masayuki Kitano
TOKYO, May 28 (Reuters) - The euro edged lower on Friday, giving back some of the hefty gains made the previous day after China assured investors it was not losing confidence in euro zone assets.
The euro dipped 0.4 percent to $1.2307 after having gained over 1.5 percent in the previous session when stops above $1.2340 were triggered, traders said.
Still, the euro is down more than 7 percent on the month and charts indicate a monthly close below $1.2135 would favour additional weakness with the next downside support seen near $1.1640 -- a trough hit in November 2005.
Near-term support is at $1.2135, the 50 percent Fibonacci retracement of the 2000-08 advance. That lies just under the euro's four-year low of $1.2143 struck last week on trading platform EBS.
A trader for a Japanese bank said the euro's dip on Friday was likely due to selling by Japanese exporters.
"Since the euro has rebounded from levels around 109 yen or so, selling tends to emerge in Tokyo trading hours," he said, referring to the euro's recent bounce off of an 8-½ year low of 108.83 yen hit earlier in the week.
Medium-sized Japanese exporters have fallen behind in taking care of their euro-selling needs compared with major exporters, and may sell the euro again next month, the trader added.
"Medium-sized exporters still have some exposure they need to take care of in June ... and they may sell again toward the month-end," he said.
The euro dipped 0.5 percent against the yen to 112.07 yen, easing back after climbing 2.7 percent on Thursday for its biggest one-day percentage rise in 15 months.
The euro had slipped back towards its four-year low against the dollar on Thursday after the Financial Times reported that Beijing was concerned about its euro zone bond investments. But China's central bank on Thursday said the report was groundless.
South Korea's central bank also said it has no plans to reduce euro assets in its foreign reserves, the world's sixth-largest.
Market players said the reassuring comments from global reserve managers prompted investors to cover short positions in the euro, but added that the euro still faced downside risks.
"Headline risk has potential to lift euro temporarily, especially given the presence of a significant position overhang in that currency, but the near-term trend is clear, and downside pressure on the euro is unlikely to dissipate quickly," JPMorgan said in a morning note.
The dollar edged up 0.1 percent against the yen to 91.14 yen.
A large amount of options in dollar/yen are expected to expire during New York trading hours on Friday with a strike at 90.00, and that may provide near-term support to the dollar against the yen, a senior options manager at a European investment bank said in a note to clients.
The options manager said positions at options desks are gamma short in yen crosses, a factor that has contributed to their recent market swings.
With gamma shorts, options desks tend to chase spot moves, up or down, to hedge their books. (Additional reporting by Satomi Noguchi in TOKYO and Anirban Nag in SYDNEY; Editing by Chris Gallagher)