* Dollar up on day vs yen but back below 90 yen
* Japan's Fujii says won't rule out intervention
* ECB's Trichet says backs strong dollar
By Tamawa Desai
LONDON, Sept 29 (Reuters) - The dollar rose against the yen on Tuesday in a corrective move following steep gains the previous day as Japan's finance minister backtracked over its tolerance of a stronger yen.
But a rebound was seen limited as markets still saw room for the yen to rise.
Finance Minister Hirohisa Fujii said he would not rule out taking action if currency moves were irregular but that not promoting a weak currency was the correct policy.
That came after comments on Monday backtracking from remarks suggesting he was comfortable with recent yen strength, but markets were generally unconvinced.
"In contrast to other countries talking down their currencies, Japan is the only country encouraging a stronger currency so even if they continue to backtrack, the market has a strong perception it will allow the yen to strengthen," said Lee Hardman, currency analyst at Bank of Tokyo-Mitsubishi UFJ.
By 0747 GMT, the dollar was up 0.1 percent at 89.71 yen, after briefly recovering above 90 yen. It had hit an eight-month low of 88.23 yen on Monday.
Market players may still attempt to push the dollar toward January's 13-year low of 87.10 yen, and only then would markets think seriously about the possibility of intervention, analysts say, but many say a drop through 85 yen would more likely be needed.
Yasutoshi Nagai, chief economist at Daiwa Securities SMBC, said the pace of the yen's appreciation would be more of a decisive factor intervention.
"The government is likely to intervene in the market if dollar/yen falls 2-3 yen in just one day," Nagai said. "But it would be nothing more than a so called 'smoothing-operation' and not one to defend a certain level."
Traders said dollar/yen was also being whipped around by flows related to the fiscal half-year end in Japan, with dollar demand from Japanese companies prompting more short-covering by speculators but with Japanese exporters also selling dollars.
"September is generally a month of yen strength," BTM-UFJ's Hardman said.
Meanwhile, the euro was little changed against the dollar at $1.5857.
European Central Bank President Jean-Claude Trichet said late on Monday he backed the argument for a strong dollar in foreign exchange markets. The sentiment was repeated by ECB Governing Council member Ewald Nowotny.
"The dollar comments were stronger than previous commentary and reflect concern regarding the impact of a stronger euro on the euro zone economic recovery," said Geoffrey Yu, currency analyst at UBS.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was also flat at 77.111. Technical factors indicate dollar softness has yet to reverse -- dollar index has yet to trigger a minor double bottom and has pulled back a bit from top of downtrend channel from March.
Markets were keeping an eye out on euro zone confidence reports and U.S. consumer confidence report and house price data due out later in the day. (Additional reporting by Charlotte Cooper in Tokyo; Editing by Andy Bruce)