* Dollar falls on Obama plans to regulate banks
* Yen turns weaker vs euro after earlier hitting 9-mth high
* Dollar softens on index, vs euro, Aussie
(Adds comment, updates throughout; previous TOKYO)
By Jessica Mortimer
LONDON, Jan 22 (Reuters) - The dollar fell broadly on Friday after U.S. President Barack Obama proposed tough new rules for banks that some investors said would squeeze profits.
Obama set out new rules on Thursday to restrict some banks' most lucrative operations, blaming them for helping to cause the financial crisis.
This sent the dollar lower as investors tried to assess what the White House plan meant for the greenback and U.S. assets. The yen jumped in Asian trade as shares fell sharply and investors became more averse to risk but cut much of its gains, with traders saying its failure to break through key levels sparked a corrective move, particularly in yen crosses.
The higher-yielding Australian and New Zealand dollars posted solid gains against the U.S. dollar, while the euro also rose, but its advances were capped by persistent concerns over Greece's fiscal health.
"The yen strength was related to weak equities, but basically the outlook for risky assets has not changed," said Marcus Hettinger, global FX strategist at Credit Suisse in Zurich, adding he still saw upside for the Australian dollar.
"The Greece concerns are still there for the euro, but much of the negative news is already priced in."
By 0904 GMT, the dollar was down 0.2 percent against the yen at 90.23 yen, off an earlier five-week low of 89.78 yen hit on the EBS trading system. Support was seen at 88.80/90 yen, an area it bounced from in mid-December.
The euro rose 0.3 percent against the dollar to $1.4138. It gained 0.2 percent to 127.65 yen rebounding after breaching a long-held chart support at 127.00 that pushed it to a nine-month low of 126.55 yen.
"The yen has been the biggest gainer overnight...while the U.S. dollar has also slipped back as the markets digest the impact of President Obama's determination to rein in the banks and the potential effect on their risk profiles," CMC Markets' Michael Hewson said.
A senior trader at a European bank in Tokyo said 127.00 yen was a critical level for the euro, and a close below there this week would signal further falls.
DOLLAR RESPONSE
Analysts said the market was still trying to figure out how to play the dollar in response to Obama's proposals, which caused U.S. stocks to suffer their worst one-day percentage drop since October.
"Measures of this nature would limit the liquidity of the U.S. financial markets, thus affecting the attractiveness of the dollar for investors," Commerzbank analysts said in a note.
"We should really question why the plans have not put more pressure on the dollar - the reason is probably the uncertainty surrounding the actual implementation of such measures," they said.
Others, however, said the greenback may be bought, based on the view that the plans heightened risk aversion.
The dollar index fell 0.2 percent to 78.144, below its 200-day moving average at 78.48, which was seen as a zone of short-term resistance.
The Australian dollar rose 0.7 percent to $0.9074, having earlier dipped to its lowest in almost a month at $0.8983 when it fell on risk aversion in response to the Obama plans.
This prompted investors to buy it back at lower levels, with some traders saying the move had been overdone.
(Additional reporting by Charlotte Cooper in Tokyo)