* Dollar reverses early gains to trade down 0.4 percent vsyen
* Investors look to U.S. GDP, jobs data after strong ISM
* Euro retreats from five-year high vs yen but rises vsdollar
By Wanfeng Zhou
NEW YORK, Dec 3 (Reuters) - The yen rose against the dollarand the euro on Tuesday, rebounding from losses as falling stockmarkets worldwide prompted safe-haven demand for the Japanesecurrency.
The dollar slipped against the euro and a basket ofcurrencies but the decline could be short-lived on a view thatthe Federal Reserve may begin to reduce its huge bond-buyingeconomic stimulus earlier than some had anticipated.
After a strong U.S. ISM factory report on Monday, investorsare now looking to U.S. economic growth data on Thursday and, inparticular, U.S. nonfarm payrolls numbers on Friday for furthersigns of when the Fed may act.
The dollar fell 0.4 percent to 102.54 yen afterreaching 103.37 yen in Asian trading, according to Reuters data.That was close to its 2013 high of 103.73 yen, a level dollarbulls have been targeting.
"The yen caught a reprieve from extreme selling as a solidcoat of red across global bourses spurred a round of safe-haveninterest," said Joe Manimbo, senior market analyst at WesternUnion Business Solutions in Washington.
"Sentiment, though, remained decidedly bearish on the viewthat the Bank of Japan will press ahead, and maybe extend, itscurrent pace of support to the world's No. 3 economy."
Trading volumes of dollar/yen were almost double the averageover the past month, according to data from the Reuters dealingplatform. The dollar is up 18 percent against the yen this yearand rose strongly over the past month, on expectations the U.S.would soon scale back its bond-buying program while Japanesemonetary policy remained loose.
The BoJ's commitment to easy policy makes the yen the bestfunding currency for investing in higher-yielding assets inso-called carry trades. When riskier assets such as stocks fall,investors would buy back the yen, giving it a perceived safe-haven status.
Net yen short positions were at their highest since July2007, according to data from the Commodity Futures TradingCommission.
"There are certainly signs that short positioning isbecoming more stretched at current levels, while our short-termvaluation model is signalling the yen is becoming moreundervalued," said Lee Hardman, currency economist at BTMU.
"The key is the payrolls report on Friday," BTMU's Hardmansaid. "If it's another strong report, then it could pushdollar/yen higher."
The euro retreated from a five-year high of 140.03 yen to139.16 yen, down 0.2 percent on the day.
Against the dollar, the euro rose 0.2 percent to $1.3573 on expectations the European Central Bank would leaveinterest rates unchanged this week after above-forecastinflation data last Friday.
"Status quo on ECB monetary policy should persist until theend of the year, with no negative rates in sight," saidFrancesco Scotto, portfolio manager at RTFX Fund Management."Euro/dollar is still on a bullish trend and should maintainthis tone until the end of the month."
Against a basket of currencies, the dollar index lost 0.4percent to 80.593.
The Australian dollar was up 0.2 percent againstthe U.S. dollar at $0.9121 after data showed solid net exportsin July-September as well as firm retail sales in October.
Earlier, the Reserve Bank of Australia reiterated after apolicy meeting that the Aussie was still uncomfortably high.
- Europe News