* Yen slips after major chart break triggers stop-loss selling * But dollar/yen rally may be running out of steam * Euro/dollar dips, off a 2-1/2 month high hit on Friday * But seen supported ahead of Wednesday's ECB liquidity action By Jessica Mortimer LONDON, Feb 27 (Reuters) - The Japanese yen recovered from a nine-month low against the dollar on Monday as investors bought the currency at lower levels, while the euro dipped but stayed near recent highs before a liquidity injection by the European Central Bank. The dollar rose to 81.661 yen in early Asian trade, a gain of more than 7 percent since the start of month, before easing back to 80.68 yen after failing to breach a reported options barrier at 82.00 yen. Traders also cited profit-taking after the dollar's recent strong gains as well as euro/yen selling by Japanese exporters. Although most expect dollar/yen to rise further in the long term, some believe the dollar may have limited scope to gain much above 82 yen short-term given there is a possibility of more monetary easing by the U.S. Federal Reserve. The dollar's rise versus the yen has tracked a widening spread between short-term U.S. and Japanese yields after unexpected monetary easing in Japan earlier this month, coupled with data showing signs of improvement in the U.S. economy. "There is a good correlation between U.S. and Japanese two-year yield spreads, and there is no reason for U.S. yields to ramp up from here unless the data gets much better," said Gavin Friend, currency strategist at nabCapital. He said this suggested a stabilisation in dollar/yen after its recent run higher, adding it could settle into a range around 79-83 yen. Dollar buying accelerated after it broke 80.94 yen on Friday, taking it above the weekly Ichimoku cloud level, a closely watched technical indicator. The dollar has not closed above that indicator since 2007. Commonwealth Bank of Australia raised its dollar/yen forecasts to 90 yen by the end of September and 92 yen by year-end on the expectation that Japan's terms of trade to deteriorate in the coming months. But many are sceptical the recent move marks the start of a long-term uptrend in dollar/yen. "For dollar/yen to trade higher you need to see interest rates in the U.S. and other countries outside of Japan move higher. This would be the trigger for long-term weakness, but it is not the case yet," said Richard Falkenhall, currency strategist at SEB in Stockholm. Later this week, U.S. Federal Reserve Chairman Ben Bernanke may hint at the possibility of another round of bond-buying when he speaks in Congressional testimonies. The euro climbed to 109.915 yen, the highest since Oct. 31, before sliding off highs to trade at 108.14 yen. ECB CHEAP FUNDING The euro was down 0.4 percent on the day at $1.3400, with traders citing eastern European names selling. The euro may be influenced by a reported options expiry on Monday at $1.3400. The euro stayed not far from a 2-1/2 month high of $1.3486 set on Friday, with more gains possible before the ECB's second offering of unlimited 3-year loans to banks in a longer term refinancing operation (LTRO) on Wednesday. "At least for now a large ECB LTRO could be positive for the euro as the market will focus on the positives and it will increase risk appetite," SEB's Falkenhall said. A Reuters poll of economists shows that banks will take 492 billion euros, close to the 489 billion borrowed in the first deal just before Christmas. NabCapital's Friend expects the euro to rise towards $1.37/$1.38 over the next couple of weeks due to the LTRO auction, optimism that the Greek debt problems will be stabilised and better global economic data. Data also shows speculators have cut net short euro positions but they remain at elevated levels, leaving scope for more short covering to support the euro. However, the euro may struggle longer-term as concerns grow that the ECB's cheap funds are a form of quantitative easing. Hurdles also remain after finance ministers agreed to a second bailout for Greece earlier this month. Leading G20 economies told Europe it must put up extra money to fight its debt crisis, piling pressure on Germany to drop its opposition to a bigger European bailout fund. The dollar index was up 0.3 percent at 78.581, though it stayed not far from Friday's trough of 78.220. Riskier, growth-linked currencies fell, dented by weaker equities as concerns deepened about the impact of higher oil prices on growth. The Australian dollar was down 0.4 percent at $1.0661, away from a six-month peak of $1.0845 hit on Feb. 8.

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