* Dollar spikes, steadies around 78 yen as Japan intervenes * Dollar/yen had hit record low of 75.31 in early trade * Traders say dollar unlikely to sustain gains, reaction eyed By Jessica Mortimer LONDON, Oct 31 (Reuters) - The yen slid sharply against the dollar, hitting a three-month low after Japan stepped into the market to curb its currency's appreciation, though traders said more intervention would likely be needed to secure a long-lasting impact. The dollar, pressured by speculation of more easing by the Federal Reserve, jumped more than 4 percent to 79.55 yen after hitting a fresh all-time low of 75.31 on EBS trading platform early in Asian trade. It pared gains to 78.20 yen as European markets looked to test Tokyo's resolve, with traders citing official bids around 78.00 yen. The dollar was still shy of its 200-day moving average around 79.88 yen, though some traders speculated Japanese authorities may look to push it above 80 yen. "If the Bank of Japan wants to avoid the dollar slipping back quickly towards 76 yen very soon they will need to come in again to really make the point," said Niels Christensen, currency strategist at Nordea in Copenhagen. Noting that the last intervention in early August also had a significant initial effect on dollar/yen, which then very quickly dropped back down again, he said the authorities may want to avoid that happening this time. Finance Minister Jun Azumi said Tokyo stepped into the market on its own at 1025 am. local time (0125 GMT) and would keep intervening until it was satisfied with the results. Bank of Japan Governor Masaaki Shirakawa said he was focusing on risks to Japan's economic outlook as rises in the yen would have a big impact on the country's exports as well as corporate revenues and sentiment. "It was very good timing. The BOJ laid the groundwork by easing last week. Speculators' yen-buying positions have piled up, and intervention is most effective in such cases," Yunosuke Ikeda, senior FX strategist at Nomura Securities in Tokyo. Japan's central bank eased monetary policy last Thursday by boosting government bond purchases. Currency speculators doubled their net long position in the yen to 54,279 contracts in the week ended Oct. 25, the highest since the beginning of August. . Some traders speculated that Japan might want to set a Swiss-style floor for the dollar/yen rate, though many were sceptical authorities could peg the yen to any particular level in the long term. G20, ECB AHEAD Tokyo's second foray into the currency markets since its record selling of 4.5 trillion yen ($59.4 billion) when it intervened on Aug. 4 followed weeks of warnings by officials that intervention was possible given the yen's strength. Traders said the size of Monday's action could be as large or larger than previous interventions. Analysts said it could be difficult for authorities to maintain the rise in dollar/yen as Japanese exporters may sell into the dollar's rally to step up their currency hedging. Meanwhile Europe's debt crisis looked set to dominate the G20 summit in France on Nov. 3-4 after an Italian debt sale on Friday saw the country pay record high yields, underscoring concerns that last week's plan to contain the euro zone's debt crisis leaves many issues unresolved. The sharp rise in dollar/yen prompted across-the-board gains in the dollar, causing the euro to erase most of last week's sharp rise. The euro was down more than 1 percent at $1.3993 , off a two-month high of $1.4248 hit on Thursday. Analysts said the euro could remain weak ahead of a European Central Bank policy meeting on Thursday, where an interest rate cut for December may be flagged. It was also possible the dollar would come under pressure, with Federal Reserve Chairman Ben Bernanke likely to repeat his disappointment at the pace of recovery and explore further options for supporting growth at the Fed's two-day policy meeting starting on Tuesday. The dollar index rose 1.2 percent to 76.001 .

Source