* Yen rallies as stop losses triggered in euro/yen pair
* Yen-funded carry trades unwound as risk appetite suffers
* Obama's plans to regulate banks further hits sentiment
By Charlotte Cooper
TOKYO, Jan 22 (Reuters) - The yen surged on the U.S. dollar and the euro on Friday as a break of key support triggered stop-loss sales, while risk appetite in general suffered on the White House's proposals to regulate U.S. banks.
The euro tumbled to a nine-month low at 126.55 yen after breaching a long-held chart support at 127.00 yen, taking the dollar down with it to its weakest in a month.
High-yielding and commodity-linked currencies such as the Australian and New Zealand dollars also fell against the yen, partly on the U.S. plan and still undermined by worries that China may further tighten monetary policy in the coming weeks.
"The major trend in the market is to reduce risk positions," a senior trader at a European bank in Tokyo said.
The euro, which has been sold heavily this week on concerns about Greece's fiscal problems, later found buyers at its lows, with traders reporting leveraged accounts and Japanese life insurer buying euro/dollar and euro/yen respectively.
It fell 0.1 percent on the day to 127.26 yen and pulled up from a six-month low of $1.4029 set on trading platform EBS on Thursday to gain 0.4 percent to $1.4135.
The senior trader said 127.00 was a critical level for the euro as a close below there this week would signal further falls. Some said the next target was April's 124.38 yen low.
U.S. President Barack Obama's proposals included preventing major banks from owning, sponsoring or investing in hedge funds for their own profit..
"I can't say I'm convinced of the wisdom here," said Adam Carr, senior economist at ICAP. "A bigger threat to the recovery and one I think we can all agree on, is the growing prospect of over-regulation."
The plan drove down bank shares, Wall Street and share markets in Asia and pushed up Wall Street's fear index.
The proposed rules would also bar institutions from trading that is unrelated to serving customers for their own profit.
Traders said this was also worrying the market, as prop trading, as it is known, can be a profit-source for banks and a liquidity source for the market.
The dollar fell to its lowest in five weeks, dropping as far as 89.85 yen before returning to 90.00. Support for the dollar is seen around 88.80/90 yen.
The dollar index eased 0.2 percent to 78.185, just below its 200-day moving average at 78.48, which was seen as a zone of short-term resistance.
The index climbed to its highest since early September on Thursday before giving up the gains after Obama's proposals.
The Aussie dipped to its lowest in almost a month at $0.8983 as risk positions were cut, coming on top of a week in which markets have fretted about tightening credit policy in China dampening demand for commodities.
Concerns that China will tighten lending and monetary policy have dragged commodity currencies down and were reinforced on Thursday by strong growth data and fears that inflation was starting to pick up pace.
The Aussie was also hit by a report the Australian government could lift taxes on mining companies, which have been making bumper profits from surging metals and coal prices.
The New Zealand dollar dipped to its lowest in almost a month against the dollar but both it and the Aussie later edged higher as the greenback lost ground in end-of-week profit-taking.
They slid to their lowest in about a month against the yen.
One dealer at a Japanese securities house said Japanese retail investors were mostly sidelined and had not so far been inclined to reverse their cross/yen positions to short from long. (Additional reporting by Anirban Nag in Sydney, Satomi Noguchi and Shinichi Saoshiro in Tokyo; Editing by Joseph Radford)