* UAE emergency support seen stabilizing Dubai situation
* Yen steady despite comments from Japanese officials
* Dollar/yen on pace for biggest monthly fall this year
* Business activity in U.S. Midwest stronger than expected (Updates prices, adds comment, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Nov 30 (Reuters) - The dollar slipped against the euro on Monday as easing concerns about Dubai's debt problems and an upbeat U.S. regional business activity report diminished the greenback's safe-haven allure.
The U.S. currency decline began in Asia as equities advanced on a pledge by the central bank of the United Arab Emirates to provide emergency support to the region's banks. Dubai's oil-rich neighbor, Abu Dhabi, also offered to provide selective support to Dubai companies. For details, see [ID:nGEE5AS0AH]
Investors remained cautious, however, and the yen rose as a top Dubai finance official said the government will not guarantee Dubai World's debt and said creditors are responsible for their actions. [ID:nSP362937]
"Even though the dollar is down, risk has been definitely taken off the table," said John McCarthy, director of foreign exchange at ING Capital Markets in New York, citing weakness in stocks.
Dollar selling may also have something to do with month-end flows related to foreign portfolios, he added.
Since the U.S. stock market rallied in November -- the S&P 500 is on track to post gains of 5 percent this month -- and boosted foreign funds' dollar holdings, managers needed to sell dollars to maintain hedge ratios at the end of the month.
"If not for the month-end flows, we would see the dollar much higher. What the Dubai news has confirmed is that the world (economy) is not as robust as the equity markets would like us to think," McCarthy said.
In early afternoon trading, the ICE Futures U.S. dollar index <.DXY>, a gauge of the greenback's performance against six other major currencies, was down 0.2 percent on the day at 74.860. The index touched a 15-month low of 74.170 last week.
The euro rose 0.2 percent to $1.5001
ROBUST MIDWEST ACTIVITY
A report showing business activity in the U.S. Midwest expanded more strongly than expected in November briefly lifted the euro above $1.5020. [ID:nN27340123]
Major currencies, however, stayed in narrow ranges as U.S. stocks fell in choppy trading and investors worried that markets will remain volatile until year-end.
"We will have a lot of window dressing as the year winds down and investors and fund managers tend to shy away from riskier assets and currencies," said Shaun Osborne, chief currency strategist at TD Securities in Toronto.
For the month, the euro gained about 1.9 percent against the dollar. The greenback fell 4.3 percent against the yen, its worst monthly performance since the end of 2008.
The yen held steady after hitting a 14-year high at 84.81
yen last week, according to Reuters data. The dollar last
traded down 0.2 percent at 86.25 yen
A Japanese official on Monday said the government would try to stem the currency's rise, although he did not cite any specific measures.
"In light of the Dubai shock, we want to respond more aggressively than originally planned with an extra budget," Japan's Strategy Minister Naoto Kan, who is also deputy prime minister, told reporters. "We also want to stop the yen's rise and cooperate with the BOJ." [ID:nT77759]
Those remarks, however, did not deter investors from buying the yen. Most analysts believe Japanese authorities will not intervene in the market to slow the yen's gains given that the rise in the currency is more a reflection of the dollar's weakness than yen strength.
In addition, the positive flow of Japanese data -- from the manufacturing sector, in particular -- increasingly supports the view that exports are far more sensitive to overseas demand conditions than currency level, according to a research note from Mizuho. ((Additional reporting by Wanfeng Zhou; Editing by Gary Crosse)) ((gertrude.chavez@thomsonreuters.com; +1-646-223-6322; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net)) ((Multimedia versions of Reuters Top News are now available for: * 3000 Xtra: visit http://topnews.session.rservices.com
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