FOREX-Dollar advances as traders trim risk exposure

* Dollar up for second straight day as risk appetite fades

* Stocks decline, banks park funds in Treasuries

* High-yielders such as Australian dollar fall sharply (Updates prices, adds comment, changes byline, dateline)

By Steven C. Johnson

NEW YORK, Nov 20 (Reuters) - The dollar rose for a second straight session on Friday as investors cut exposure to risky assets and high-yield currencies ahead of a holiday-shortened week in the United States.

European and U.S. shares declined while oil, gold and high-yield currencies such as the Australian dollar slipped as investors took profits as the end of the year approaches.

The dollar has lost some 14 percent since mid-March as signs of a global recovery prompted investors to favor higher-yield currencies and assets. Expectations for record low U.S. interest rates well into 2010 have also hurt the greenback.

"It's been a very good year for a lot of people, and it makes sense that players are going to square up positions today ahead of the U.S. holiday and month-end," said Michael Woolfolk, strategist at BNY Mellon in New York.

U.S. markets will be shut next Thursday for Thanksgiving, while Monday marks a national holiday in Japan.

The euro was down 0.5 percent at $1.4838 after touching a two-week low of $1.4800. That level was the lower end of a hefty double-no-touch option at $1.48-1.51 which market participants suspected was rolling off later on Friday.

The dollar was unchanged at 89.08 yen . Sterling shed 1 percent to $1.6483 and the Australian dollar lost 0.9 percent to $0.9111 , near an earlier two-week low. It was on track for its biggest weekly slide since May.

The dollar index was up 0.6 percent on the day at 75.720 <.DXY>, well above a 15-month low of 74.679 touched on Monday. Some traders said gains in the index accelerated following a faulty trade around 75.75, and the ICE Futures Exchange said it had canceled trades above 76.50. For more, see [ID:nWNA8455]

The greenback was also supported as banks parked funds in safe-haven assets such as U.S. government bonds.

Rates on short-dated U.S. government paper fell on Thursday, with the two-year bond yield at one point falling to the year's low of 0.68 percent. That was largely due to funds booking profits and parking their cash in U.S. government bonds to "window-dress" their books ahead of closings at the end of this month and next.

Markets showed little reaction to European Central Bank Governor Jean-Claude Trichet who said it was too early to declare the financial crisis was over. [ID:nDEG003583]

Reaction was muted as the Bank of Japan kept interest rates at a record low 0.1 percent as expected, and upgraded its assessment on the economy.

BOJ Governor Masaaki Shirakawa said there was no change in the central bank's stance on maintaining very low interest rates to support the economy. [ID:nT263401]

"The government's decision to officially state now that the economy has fallen into deflation is likely an attempt to increase pressure on future BOJ policy decisions to ease monetary conditions further," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ, and that could weaken the yen next year.

(Additional reporting by Naomi Tajitsu in London; Editing by Chizu Nomiyama)