(Corrects Australian dollar low to 2-1/2 month, not 2-1/2 week, in 9th para)
* Yen wallows at four-year lows vs euro, four-month lows on USD
* AUD also under pressure, still pressured by RBA intervention talk
* Markets keeping an eye on China/Japan spat
By Ian Chua
SYDNEY, Nov 25 (Reuters) - The yen started the new week at four-year lows versus the euro and a four-month trough on the dollar, still very much the funding currency of choice in a trend that is likely to continue in this U.S. holiday-shortened week.
Latest data showed currency speculators increased net short positions in the Japanese currency to the most in six years, reflecting a belief the Bank of Japan will stay the most aggressive in maintaining its massive stimulus program among major central banks.
The euro rose as far as 137.36 yen in early Asian trade, pipping Friday's peak of 137.32. The dollar retested Friday's high of 101.36 yen, on track to break the July 8 peak of 101.54.
"The USD/JPY rally may gather pace during the final week of November as a slowing recovery in Japan undermines the Bank of Japan's pledge to achieve the 2 percent target for inflation by 2015," said David Song, currency analyst at DailyFX.
Recent data showed the world's third biggest economy slowed in the third quarter.
"The deviation in the policy outlook may continue to spur higher highs in the exchange rate as the Fed looks to taper its asset-purchase program in the coming months."
Against the dollar, the euro bought $1.3553, having just about recovered all of the losses suffered last Wednesday after a media report suggested the European Central Bank could lower its deposit rate to negative.
The report, which had since been played down by the ECB, sent the euro spiralling to a low of $1.3399 from $1.3584.
Meanwhile, the Australian dollar languished near a 2-1/2 month low of $0.9143 plumbed on Friday, still haunted by the threat of intervention from Reserve Bank of Australia Governor Glenn Stevens.
Stevens last Thursday said the central bank was "open-minded" about intervention to weaken the currency, having consistently argued the Aussie dollar was overvalued compared with fundamentals.
It last traded at $0.9165, having slid 2.1 percent last week. Immediate support is seen around $0.9097, the 76.4 percent retracement of its August to October rally.
Traders said the commodity currency could continue to struggle particularly if tensions between China and Japan grew.
China at the weekend suddenly imposed new rules on airspace over islands at the heart of a territorial dispute with Tokyo, prompting Japan and ally the United States to warn of an escalation into the "unexpected" if Beijing enforces the rules.
However, news of a breakthrough that curbed Iran's nuclear activity could help offset any potential fallout from renewed China/Japan tension.
Iran and six world powers clinched a deal on Sunday to curb the Iranian nuclear programme in exchange for initial sanctions relief. The news saw oil prices fall sharply.
There is no major economic data due in Asia on Monday, while most of the U.S. economic releases will be front-loaded this week ahead of the Thanksgiving holiday on Thursday. (Editing by Shri Navaratnam)