* Euro falls roughly 1 percent vs dollar, yen
* Market watching stocks, U.S. earnings for direction
* SNB to stick "decidedly" to preventing franc rise - Roth
* ECB starts covered bond purchases slowly
(Adds quotes, updates prices)
By Naomi Tajitsu
LONDON, July 10 (Reuters) - The dollar rose broadly and the yen hovered near the week's peaks against other major currencies on Friday on investor caution as the U.S. corporate earnings season began and share prices fell.
The yen hit a five-month high against the dollar this week and surged to two-month highs against the euro and Australian dollar as investors unwound bets in riskier assets that they made using the low-yielding Japanese currency.
It lost a chunk of those gains on Thursday but then held its ground as the other currencies lost momentum and S&P stock futures signalled a weak start to Wall Street later.
"It's back to the risk aversion story, in which the dollar and yen gain," said Christian Lawrence, currency strategist at RBC Capital Markets.
The yen gained in particular this week as the dollar's reserve currency status came under scrutiny, although reaction was muted to calls from China for a review of the reserve currency system at a meeting of world leaders on Thursday.
By 1059 GMT, the euro was 0.9 percent lower at $1.3897. The common currency was down 1.1 percent against the yen at 128.90 yen.
European shares were down 0.8 percent.
The dollar index, which tracks performance against a basket of six major currencies, was up 0.7 percent at 80.429.
The dollar was down 0.2 percent at 92.74 yen.
SWISSIE EYED
Analysts said that data earlier this week showed that speculators are holding the most short positions in the dollar since before the collapse of Lehman Brothers in autumn, which had sparked massive risk aversion and dollar demand.
Peter Frank, currency strategist at Societe Generale in London, said this accumulation of shorts may be a warning sign that a shift back into long positions may be imminent, as optimism fades about improvements in the global economy.
"Speculators are still positioned for risk appetite, but the market is going the other way," he said.
He added that traders may be looking for opportunities to flip those positions, and that further losses in equities, oil and commodities may trigger a hefty rise in the dollar.
The European Central Bank and euro zone national central banks bought 23 million euros' worth of covered bonds under the 60 billion euro programme launched this week, the ECB said on Friday. The programme is aimed at boosting lending to stimulate the ailing economy.
The Swiss franc edged lower after Swiss central bank chief Jean-Pierre Roth said in an interview published on Friday the Swiss National Bank was sticking "decidedly" to its policy to prevent an appreciation of the Swiss franc.
The dollar gained 1.0 percent on the day to 1.0908 Swiss francs while the euro rose 0.3 percent to 1.5165 francs.
Sterling fell 0.8 percent on the day to $1.6205, relinquishing gains made on Thursday in part after the Bank of England surprised markets by not using the remaining 25 billion pounds available under the current asset-buying programme.
The central bank has said it will review the programme in August when it releases new quarterly forecasts.
(Additional reporting by Tamawa Desai; Editing by Ron Askew)