* Dollar lower vs yen but hovers near 95 level
* Dollar recovers from two-month low as stocks climb
* Dollar index steady after plumbing 4-month low
* Fed meeting next week would be main focus
By Anooja Debnath
LONDON, June 14 (Reuters) - The dollar stayed weak against the yen on Friday, but a recovery in stocks helped pull it out of the two-month trough it had slumped to in the previous session.
The Japanese equity benchmark closed up around 2 percent, while European shares rose, breaking a four-day losing streak.
The dollar-yen has been locked in step with the Nikkei in recent weeks as investors unravel the sell-yen, buy-stocks trade that dominated the market between November and May. A fall in equities also forces investors to pare the dollar hedges initially put in place to protect them from a weakening yen.
The dollar has lost close to 10 percent since May 22, when it peaked at 103.74 yen.
The U.S. currency was down 0.4 percent at 95.00 yen, but comfortably above a trough of 93.75 yen plumbed on Thursday after a 6.4 percent slide in the Nikkei. A reported options expiry at 95.00 yen could keep the pair pinned at that level.
Traders also cited Japanese exporter bids earlier in the day as helping the dollar pare losses against the yen.
“We have seen a slight relief from recent volatility in the markets this morning as equity markets are opening a bit higher today,” said Commerzbank head of FX research Ulrich Leuchtmann.
But he said the dollar was unlikely to see considerable gains against the Japanese currency, which tends to rise in times of financial turmoil, until there was a bit more clarity about central banks’ monetary policies.
“The risk-off (sentiment) we see is mainly due to markets being unsure about the monetary policy of the future ... this is good reason to be cautious of risky assets and to look into safe havens like the yen,” Leuchtmann said.
The current bout of market turbulence started when investors began worrying that the Federal Reserve will start scaling back its stimulus programme this year.
Winding the programme down early should help the dollar, as the Fed’s bond-buying equates to printing money. But concerns that a reduction in easy money could hurt risk sentiment has driven equities lower and battered emerging currencies.
The Fed next meets on June 18-19, when markets will look to chairman Ben Bernanke to make clear that the timing of stimulus withdrawing will depend on economic data and give more details about the central bank’s decision to ‘taper’ its bond-buying.
“For the coming week, markets should position for Bernanke trying to assuage market fears,” said Alan Ruskin, strategist at Deutsche Bank.
The dollar index was up 0.1 percent at 80.85, recovering from a four-month low of 80.500 on Thursday after upbeat U.S. data lifted global equities and supported the dollar. But the dollar remained on track for its fourth consecutive week of losses against a basket of currencies.
The euro has gained in recent days against the struggling dollar, taking it to a four-month high of $1.3390 on Thursday. But with sellers emerging on rallies, the euro was last trading down 0.3 percent on the day at $1.3336.