* Yen moves away from lows as investors take profits
* Dollar retreats despite positive data on Thursday
* Euro extends slide after second-half rally
By Laurence Fletcher
LONDON, Jan 3 (Reuters) - The yen rose on Friday as investors shunned risk and took profits after rallies in the dollar and the euro, helping the Japanese currency move away from recent five-year lows.
The dollar fell 0.4 percent to 104.33 yen, down more than a full yen from a five-year high of 105.45 yen set on Thursday.
Traders said there had been some stop-loss dollar offers at levels between 104.50 and 104.30 yen. Moves can also be larger when volumes are thin, with Japanese market players not back from their New Year holidays until next week.
The euro, the top-performing major currency of 2013, shed 0.6 percent to 142.37 yen, extending its losses in the wake of its 1.2 percent slide the previous day. The single currency pulled away from a five-year peak of 145.675 yen set last Friday.
Investors tend to flock to the yen in times of market stress. Asian shares outside Japan shed 1 percent as a slower China services survey prompted some caution but European markets made small gains and analysts said thin trade was making currencies more volatile.
The 10-year U.S. Treasury yield also dipped back to levels below 3 percent, offering less support to the dollar.
"January is a bit of a messy month for foreign exchange," said Simon Smith, head of research at FxPro. "Volumes are still thin ... Things are very much driven by flows.
"I don't think the yen is a one-way bet in 2014. The easy wins have been had. Always the most run-over people in the markets are yen bears."
Smith expects dollar/yen to end the year at 109 yen per dollar.
Betting on the dollar against the yen has been a big trade for hedge funds and other investors over the past year, who see the Bank of Japan's ultra-loose monetary policy and potential for more stimulus this year as one of the clearer themes in tricky currency markets.
Data on currency futures positions on the Chicago Mercantile Exchange shows that currency speculators had increased their net short position in the yen to 143,822 contracts in the week ended Dec. 24, the largest since July 2007 and up from 62,395 contracts in late October.
"I think the yen's strength over the past couple of days can be attributed to profit-taking, with the moves exacerbated by lower liquidity due to the holidays in Japan," said Fawad Razaqzada, technical analyst at FOREX.com.
"The fact that the dollar/yen pair formed a mini double-top pattern at 105.40 (yen), just shy of the 61.8 percent Fibonacci retracement level of the 2007-11 downswing, suggests the move was indeed technically driven."
The dollar index was down 0.1 percent at 80.567, having hit a two-week high on Thursday as a slew of generally positive U.S. economic data reinforced expectations the Federal Reserve will continue to move away from its bond purchases.
The euro hit a two-week low against the dollar of $1.36285 and was last at $1.3652, down 0.1 percent.
The single currency - whose second-half rally was driven by factors such as euro zone banks repatriating funds to shore up their capital bases and repaying cheap loans to the ECB - has retreated from a two-year high of $1.3894 touched last Friday.
Marshall Gittler, head of global FX strategy at IronFX Global, said 2014 had begun with last year's trends reversing.
"Looking at the G10 currencies, most of the movement was mean reversion: the currencies that gained in December lost, and those that lost, notably the yen, gained," he said.
The Australian dollar, a favourite short for hedge funds last year, jumped 1 percent against the dollar to $0.8988 with some funds now looking to take profits, although it stopped just short of breaking through the $0.90 level. The New Zealand dollar was 1.3 percent higher at $0.8290.