* Yen steady vs dollar, investors wary of more yen selling
* Euro at 1-month high vs dollar, yen after Spain auction
* Swiss franc weakens broadly after SNB meeting (Adds comment, updates prices)
By Wanfeng Zhou
NEW YORK, Sept 16 (Reuters) - The yen edged higher against the U.S. dollar on Thursday with the Bank of Japan staying out of currency markets after their massive yen-selling operation the previous day, but wariness about fresh selling capped gains.
The euro rose to its highest in more than a month against the dollar and the yen after strong demand at a Spanish bond auction reinforced confidence in Europe.
Japan sold an estimated 1.8 trillion yen ($21.14 billion) for dollars on Wednesday, a record for a single day, in a bid to help its exporters and increase its money supply to counter deflation. Japan's first currency intervention in six years knocked the yen from a 15-year high versus the dollar, but the yen's six month uptrend did not look to be convincingly broken.
"Things have been quiet on the intervention front so far today. Clients are hesitant at this point to touch dollar/yen in either direction," said Amelia Bourdeau, senior currency strategist at UBS AG in Stamford, Connecticut.
"Investors need more information. They have to watch dollar/yen for another week or two just to see the frequency with which they come in to the market and the size (of intervention)," she added.
Prime Minister Naoto Kan reiterated on Thursday Japan would take decisive steps on yen strength, Jiji news agency reported, while Bank of Japan Governor Masaaki Shirakawa said he expected intervention would stabilize the forex market. [ID:nTKF107009]
In mid-morning trading, the dollar was down 0.1 percent
against the yen
The dollar earlier hit a session high of 85.84 yen on electronic trading platform EBS after stops were triggered at 85.80 yen. Traders said there were no signs of yen-selling by Japanese authorities.
"There's no sign of the Bank of Japan this morning yet on markets, but they were successful yesterday and we are beginning to see some funds moving in the same direction, unwinding long yen positions," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. He added investors should look out for stops at 86.10 yen.
Analysts said the dollar's upside may be capped around 85.83 yen, where a trendline from the dollar's highs in May and June falls, and 85.95 yen, the 55-day moving average.
Others said Japanese authorities may have a hard time fighting the yen's strength, given narrow yield spreads between Japanese and U.S. government bonds.
"It is almost inevitable that the Japanese authorities will
have to continue intervention heading into year end with
USD/JPY likely to remain under downward pressure as the U.S.
economy slows and the Fed moves towards renewed monetary
easing," said Lee Hardman, currency economist at The Bank kof
Tokyo-Mitsubishi UFJ in London. "From an operational
standpoint, there is still plenty of scope for further
intervention."
For Breakingviews on Janan's yen intervention [ID:nLDE68E0JD]
For dollar/yen correlations http://link.reuters.com/wyn43p
For graphic on intervention http://link.reuters.com/wym42p
For Insider on yen http://link.reuters.com/rak63p
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Market participants said dollar selling by some Japanese exporters pushed the U.S. currency off Wednesday's high of 85.78 yen hit on electronic trading platform EBS. Traders have said exporters want to sell the dollar above 85 yen before their half-year book-closings at the end of September.
SPANISH BOND SALE
The euro
"The Spanish bond auction went very well and that's removed some of the debt risks attached to the euro," said Chris Turner, head of fx strategy at ING.
Traders in London said the euro's initial rise after the results took out stop-loss orders placed around $1.3047, the 61.8 percent retracement of its sell-off in August.
It rose as high as 112.40 yen
The Swiss franc weakened broadly after the Swiss National Bank kept interest rates unchanged as expected and said that it expected a slowdown in economic growth due to strength in the currency. [ID:nWEA8411]
The euro jumped 1.6 percent to 1.3291 francs
(Additional reporting by Vivianne Rodrigues, Nick Olivari, Gertrude Chavez-Dreyfuss in New York and Neal Armstrong in London) (Editing by Theodore d'Afflisio)