* N.Korea says conducted nuclear test
* N.Korea fires short-range missile -Yonhap
* News spurs yen-selling, exacerbated by position unwinding
* Traders eye Treasury debt auctions this week
By Masayuki Kitano
TOKYO, May 25 (Reuters) - The yen fell broadly on Monday following news that North Korea conducted a nuclear test and a report that it had fired a short-range missile, with traders saying its fall was exaggerated by position unwinding.
The yen showed little initial reaction to news that North Korea had conducted a nuclear test on Monday, but yen-selling later gained steam after South Korea's Yonhap news said North Korea had fired a short-range missile.
Some market players said such news about North Korea could be seen as being negative for the yen given Japan's geographical proximity to North Korea.
"That provided the trigger, but one factor is that there had been some short-term long positions in the yen," said a trader for a major Japanese trading house.
The yen is being pressured by the cutting of some loss-making positions, the trader added. The dollar rose 0.4 percent to 95.11 yen, pulling away from a two-month low of 93.85 yen on trading platform EBS on Friday.
The euro rose 0.5 percent to 133.38 yen and rose 0.2 percent to $1.4023, edging back towards Friday's high on trading platform EBS of $1.4051, its highest since early January. Despite North Korea's nuclear test and the report of its short-range missile firing, the overall trend among investors seems to be toward risk-taking, said the trader for a major Japanese trading house, noting that Tokyo share prices clung to their gains despite such news.
FOCUS ON DOLLAR
The dollar was broadly steady, holding near a five-month low hit against a basket of currencies last week when concern that U.S. government debt may lose its AAA rating prompted investors to sell the world's reserve currency.
The dollar index, a gauge of the greenback's performance against six major currencies, was steady at 80.066, and remained near a five-month trough of 79.805 hit on Friday.
Market players were focusing on the U.S. Treasury's two-, five- and seven-year debt auctions this week totalling $101 billion -- an important test of investor appetite for dollars and dollar assets.
"Few think U.S. sovereign credit ratings will be cut in the near term," said Minoru Shioiri, a senior manager of FX trading at Mitsubishi UFJ Securities.
"But market participants are likely to keep using U.S. rating concerns as an excuse to sell the dollar if the Treasury's auctions fail to attract demand."
The dollar index lost 3.7 percent last week, its steepest weekly fall since the Federal Reserve launched its large-scale buying of Treasuries in late March, which hurt the dollar due to worries the move could cause an effective devaluation.
The dollar came under pressure after Standard & Poor's said on Thursday it could downgrade Britain's triple-A credit rating.
The move sparked broad selling of U.S. stocks and bonds, reflecting anxiety over the U.S. government's mounting indebtedness as it grapples with the worst financial crisis in generations.
Market players said investors were reluctant to take fresh positions as U.S. financial markets are closed on Monday for the Memorial Day holiday, while British markets are also shut for a bank holiday. (Additional reporting by Rika Otsuka)