* Dollar drops through 83.50 yen to latest 15-year low
* Euro flounders near record trough on Swiss franc
* Market testing water for next trend move
By Charlotte Cooper
TOKYO, Sept 8 (Reuters) - The dollar dropped to its latest 15-year low on the yen on Wednesday and the euro struggled near record lows against the Swiss franc as the market weighed whether to sell it further on euro zone banking worries.
The market is trying to ascertain how risk-averse it should be after a report reignited concerns about European sovereign debt and banks' exposure on Tuesday, sending stocks down and lifting the low-yielding, safe-haven yen, franc and dollar.
The move has also helped the yen against the dollar, which fell to its lowest since 1995 as traders probed for options barriers at 83.50 and tested Japanese authorities' pain threshold for currency strength. The dollar dipped as far as 83.34 yen, down 0.5 percent on the day.
"The euro looks precarious again. The dollar will be weak ahead of the mid-term election. That leaves the yen as the only currency to buy especially after (Bank of Japan Governor) Shirakawa made only vague comments about the yen," a U.S. bank trader said.
BOJ Governor Masaaki Shirakawa reiterated on Wednesday his reluctance to return to quantitative easing but indicated the central bank was weighing its options on how to deal with economic impact from yen strength.
The euro also fell 0.5 percent to 105.83 yen and was threatening to revisit August's nine-year low just below 105.50.
Yen strength has stirred up speculation whether Japan would intervene to dampen it.
Michael Hasenstab, Franklin Templeton's co-director of international bonds, said more quantitative easing steps by Japan were possible and could weaken the yen, and this prompted Templeton to hold on to short yen positions versus the dollar dollar and other Asian currencies.
"The only source of strength in the Japanese economy is exports. And with the yen sub 90 (per dollar), they will be under extreme pressure," Hasenstab told the Reuters' Dealing Room online chatroom.
The euro was pinned at $1.2690, having dived from $1.2870 on Tuesday and a three-week high of $1.2920 the day before. Traders are now looking for a test of support around $1.2625, though they are not exactly keen to go long on the U.S. currency either.
"It's the same old ugly contest -- which currency is the least unattractive," said a dealer at a local bank in Sydney.
The euro eased slightly on the day to 1.2820 francs, just above the previous day's record low of 1.2812 francs, and traders saw little chart support until 1.2700.
The euro held near a record low on the Australian dollar set on Tuesday below A$1.3900. (Additional reporting by Wayne Cole in Sydney and Hideyuki Sano in Tokyo; Editing by Joseph Radford)