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* 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
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By Leah Schnurr
NEW YORK, Sept 29 (Reuters) - The U.S. dollar firmed on Tuesday, rallying from an eight-month low against the yen 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 repeated that global competition to devalue currencies would be the wrong policy.
However, gains in the dollar were limited as markets still saw room for the yen to rise. For story, click on [ID:nT324421]. The Japanese currency rose to an eight-month high against the dollar on Monday after the newly appointed finance minister said he was comfortable with a strong yen as the government intends to boost domestic demand. In the past, Japan intervened in the market to weaken the yen and support exports.
"Most central banks don't want to see rapid appreciation, and if you see the yen have a gradual grind higher versus the dollar, that may not necessarily send red flags up," said Gareth Sylvester, currency strategist at HiFX in San Francisco.
"What they don't want to see is rapid appreciation of two, three, four percent in as many days ... that's when they start to get themselves positioned to potentially intervene to stem the pace of that appreciation," he added.
In terms of technical charts, Monday's dollar/yen move was the first piece of a bottoming formation, and a close above 89.79 would provide confirmation, said Camilla Sutton, senior currency strategist, at Scotia Capital.
Market players may still attempt to push the dollar toward January's 13-year low of 87.10 yen on the EBS trading platform and only then think seriously about the possibility of intervention, analysts say. Many expect a drop through 85 yen would be needed for the Japanese government to take action.
In midday New York trading, the dollar was up 0.7 percent at 90.25 yen, hitting session highs around 90.39.
SAFE HAVEN APPEAL
The dollar rose to fresh two-week highs against the euro after data showed U.S. consumer confidence fell unexpectedly in September. [ID:nN29136250]
"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.
Investors are also focused on Friday's key September jobs report. Another decrease in the pace of job losses could bolster optimism for an economic recovery and take some of the shine off the dollar's safety appeal.
The ICE Futures dollar index, which tracks the performance of the greenback versus a basket of six major currencies, was up 0.2 percent at 77.231 <.DXY>.
The euro
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. [ID:nLS402293]
The euro hit a session low against the yen at 130.71 yen
Against the dollar, sterling