* S.Korea pension service says to cut US bond holdings
* Yen up as speculators book profits on rally in dollar, euro
* Dollar under pressure vs euro as risk appetite warms
By Rika Otsuka
TOKYO, May 29 (Reuters) - The dollar fell towards a five-month low against a basket of major 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.
The greenback extended losses yesterday on worries about whether the United States could keep attracting enough funds to finance its programmes to support the financial industry and stimulate the economy.
South Korea's National Pension Service (NPS), which is expected to manage 432 trillion won ($343.7 billion) by the end of 2014, would reduce its exposure to equities and U.S. bonds, its overseeing ministry said on Friday.
"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 mind off the possible impact the market could have on exchange rates and share prices if things get ugly."
Dallas Federal Reserve Bank President Richard Fisher said on Thursday that official foreign holdings of U.S. government bonds had grown and appetite to hold the country's assets remained intact, despite expected record U.S. government deficits.
The dollar index, a gauge of the U.S. currency's performance against six major currencies, slid 0.3 percent to 80.274.
The index struck a five-month low of 79.805 late last week on concerns that the United States may lose its AAA-rating status.
The euro gained 0.3 percent from late U.S. trade to $1.3978, 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 and hovered just above an eight-month low against the Australian dollar.
The dollar slid 0.4 percent from late U.S. trade to 96.39 yen. It rose as high as 97.24 yen on trading platform EBS on Thursday, its highest in more than two weeks and well above a two-month trough of 93.85 yen reached last week.
The yen got a lift from news on Friday that Japan's industrial output jumped 5.2 percent in April, more than expected and the second straight month of increase.
But traders said the yen was getting more help from speculators who booked profits on the previous day's rally in the dollar, euro, Australian dollar and sterling 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.
The euro slipped 0.2 percent to 134.74 yen. It hit a seven-week peak of 135.30 the previous day when it finished up 2.4 percent. (Editing by Joseph Radford)