* Better-than-expected data supports dollar vs yen * Japanese demand for overseas assets hits yen * US Treasury to auction seven-year notes (Adds comments, details) By Vivianne Rodrigues NEW YORK, May 28 (Reuters) - The dollar rose versus the yen on Thursday as better-than-expected data and a spike in U.S. bond yields attracted Japanese investors into overseas assets. Investors sold the yen, while buying assets in higher-yielding currencies such as the euro, the U.S. and Australian dollars and in emerging markets, such as Brazil. Reports in the U.S. showing better-than-expected readings on durable goods orders and weekly jobless claims also boosted risk appetite, hurting the dollar versus the euro while supporting it against the yen. "There's an ongoing search for higher yields among Japanese investors. There's a clear move out of the yen but the buying is not only concentrated in U.S. dollars," said Win Thin, a currency strategist at Brown Brothers Harriman in New York. "Other currencies such as the Australian dollar and some of the large emerging markets are being favored as well," he said. "Data in the U.S. has stopped getting worse, which is supportive for the dollar against the yen, but it takes off its safe haven bid versus the euro." Yields on 10-year U.S. government bonds have jumped more than 50 basis points in the last two weeks, driven in part by worries about the ever-expanding amount of debt needed to fund a record $1.75 trillion U.S. budget deficit. U.S. 10-year Treasuries now yield around 3.8 percent versus 1.5 percent for the Japanese equivalent . "The rise in long-term bond yields is attracting Japanese investors back into the U.S. Treasury markets," said Kathy Lien, director for currency research at GFT Forex in New York. "The biggest story in the currency market today is in dollar/yen. Its sharp rise has pushed all of the Japanese yen crosses higher." In morning trading in New York, the dollar was up about 2 percent at 97.17 yen , its highest in more than two weeks and pulling away from a two-month low of 93.85 yen hit last week. The euro was up 2.3 percent at 134.71 yen , after trading as high as 134.92 yen, according to Reuters data. The yen also shed more than 2 percent of its value against higher-yielding currencies such as the Australian and New Zealand dollars and fell versus the Brazilian real. The U.S. dollar fell against the euro after government reports showed the number of U.S. workers filing new claims for jobless pay dropped last week, while new orders for long-lasting U.S. manufactured goods rose more than expected in April. See [ID:nN27221554] and [ID:nN28160720] The euro was last 0.5 percent higher at $1.3909 . JAPANESE INVESTORS Data from the Ministry of Finance showed Japanese investors returned from the Golden Week holidays and bought foreign bonds last week, noted RBC Capital Market's global head of FX strategy Adam Cole. "Anecdotal evidence suggests this flow picked up substantially this week and is a major driver of JPY underperformance," Cole said in a note. The recent sharp rise in U.S. yields has come despite strong demand at the two Treasury auctions this week -- notably from foreign investors -- which has soothed some concern over the long-term U.S. sovereign credit ratings outlook and supported the dollar. Investors' attention now shifts to the sale of seven-year notes due later in the day from the U.S. Treasury Department, which is selling a total of $101 billion of Treasuries this week.

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