* S.Korea pension service says to cut US bond holdings
* Dollar/yen dips on Japan exporter selling
* Dollar broadly under pressure as risk appetite warms
* Dollar index on course for worst month since December
By Rika Otsuka
TOKYO, May 29 (Reuters) - The dollar slipped towards a five-month low against a basket of currencies on Friday as signs the global recession may have passed its worst and concern about ballooning U.S. government debt prompted investors to sell the safe-haven currency.
The dollar was under pressure again a day after strong U.S. durable goods data reduced the need for investors to hold the world's most liquid currency.
Demand for dollars can rise in times of extreme money market stress or when U.S. investors turn risk-averse and repatriate funds from abroad.
But such demand has waned in recent months and there is a renewed focus on whether overseas investors will retain their appetite for U.S. government debt at a time when issuance is climbing.
"The main focal point in the forex market continues to be the U.S. Treasury market," said a senior trader at a big Japanese bank. "Given its huge size, people just cannot take their minds off the possible impact the market could have on exchange rates and share prices if things get ugly."
Traders said news that South Korea's National Pension Service (NPS) would reduce exposure to U.S. government bonds and risky assets such as equities in its five-year portfolio added to pressure on the dollar.
The NPS is expected to manage 432 trillion won ($343.7 billion) by the end of 2014, and U.S. government bonds account for 83 percent of the pension fund's direct holdings of foreign bonds, which are currently worth $6.5 billion.
The dollar index, a gauge of the U.S. currency's performance against six major currencies, dipped 0.3 percent to 80.287.
The index struck a five-month low of 79.805 late last week on concerns that U.S. government debt may lose its AAA-rating status, and it is down over 5 percent for the month, the biggest monthly fall since it dropped more than 6 percent in December.
The euro gained 0.3 percent from late U.S. trade to $1.3984, crawling towards last week's peak of $1.4051, its strongest since early January.
The dollar hit a five-month low against the Swiss franc of 1.0786 francs and fell to an eight-month low against the Australian dollar of $0.7916.
The dollar fell 0.3 percent against the yen to 96.55 yen, due partly to selling by Japanese exporters, but was well above a two-month trough of 93.85 yen marked last week. The yen, however, fell to an eight-month low against the Australian dollar of 76.38 yen.
The euro was steady against the yen at 135.06 yen, near a seven-week peak of 135.30 yen hit on Thursday when it climbed more than 2 percent against the Japanese currency.
"The firmness in stocks has boosted Japanese retail investors' risk appetite," said Tsutomu Soma, a senior manager in the foreign securities department at Okasan Securities, adding that household investors' money is also flowing out of the country through pension funds.
"Profit-taking in overseas currencies may temporarily lift the yen, but the downward trend in the yen is likely to stay intact," Soma said. (Additional reporting by Masayuki Kitano; Editing by Joseph Radford)