* Dollar up on day vs yen, rises above 90 yen
* Japan's Fujii says won't rule out intervention
* Euro falls to two-week low vs dollar
* U.S. consumer confidence slips in September
(Adds comment, US consumer confidence data, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 29 (Reuters) - The U.S. dollar firmed against the yen on Tuesday, rallying from an eight-month low hit the previous day, after Japan's finance minister said the government would take action if currency moves were sharp and irregular.
Japanese Finance Minister Hirohisa Fujii on Tuesday also repeated that a global competition to devalue a currency would be the wrong policy. Gains in the dollar, however, were limited as markets still saw room for the yen to rise.
"The message from the MoF (Japanese finance ministry) is increasingly confusing...We think that rhetoric will increase should there be further yen appreciation," said Camilla Sutton, senior currency strategist, at Scotia Capital in Toronto.
In his initial remarks after being appointed finance minister, Fujii had said he was comfortable with a strong yen given that the government intends to boost domestic consumption, prompting investors to buy the Japanese currency.
In the past, Japan had intervened in the market to weaken the yen in a move to boost its exports.
Sutton said in terms of technical charts, Monday's "hammer (on dollar/yen) is the first piece of a bottoming formation, a close above 89.79 would provide confirmation."
In midmorning New York trading, the dollar was up 0.7 percent at 90.23 yen, hitting session highs around 90.34.
The dollar earlier trimmed gains versus the Japanese currency, but rose to fresh two-week highs against the euro after a U.S. consumer confidence index for September fell unexpectedly.
"That kind of spurred some (safe-haven) demand for the dollar and helped the dollar push to a new two-week high against the euro as a result," said Joe Manimbo, currency trader at Travelex Global Business Payments in Washington.
"That's the type of data that would reinforce expectations for a sluggish recovery going forward. It's just more evidence that it's going to be a protracted recovery."
The consumer confidence report offset upbeat U.S. home prices data released earlier in the session. The S&P/Case-Shiller composite index of 20 metropolitan areas rose for a third straight month in July, surpassing forecasts.
Market players may still attempt to push the dollar toward January's 13-year low of 87.10 yen on the EBS platform and only then think seriously about the possibility of intervention, analysts say, though many say a drop through 85 yen would more likely be needed.
The ICE Futures dollar index, which tracks the performance of the greenback versus a basket of six major currencies, was up 0.1 percent at 77.165.
The euro fell 0.5 percent to $1.4546, after dropping to a two-week low around $1.4527, according to Reuters data, as short-term players unwound some long euro positions.
"There has been concern about euro strength given the ECB comments on Monday. So that has been hovering in the market and investors are cautious of taking the euro higher," said Vassili Serebriakov, currency strategist, at Wells Fargo in New York.
European Central Bank President Jean-Claude Trichet said late on Monday he backed the argument for a strong U.S. dollar in foreign exchange markets. This sentiment was repeated by ECB Governing Council member Ewald Nowotny.
The euro hit a session low against the yen at 130.71 yen, pressured across the board amid a 1 percent drop against sterling. The pound rose broadly on the back of a surprising jump in UK sales figures.
Against the dollar, sterling gained 0.3 percent to $1.5928.
(Additional reporting by Wanfeng Zhou) (Editing by Theodore d'Afflisio)