* Euro gains slightly vs dollar ahead of weekend U.S. fiscal talks
* Euro set to test 200-week moving average against yen
By Lisa Twaronite
TOKYO, Dec 28 (Reuters) - The yen's spiral continued on Friday, with the Japanese currency registering a more than two-year low against the dollar and a 17-month nadir versus the euro in early Asian trading on expectations of more stimulus steps from the country's new government.
The dollar slipped slightly against the euro ahead of weekend talks in Washington aimed at avoiding the "fiscal cliff" of tax increases and spending cuts, although the two sides appeared to remain far apart.
Japan's new Prime Minister Shinzo Abe has vowed to weaken Japan's currency and push through aggressive stimulus to fight deflation. One of Abe's key advisers told Reuters in an interview on Thursday that the Bank of Japan needed to set a higher price target, and the government needed to make the central bank more accountable for its policy objectives.
The dollar rose as high as 86.64 yen on trading platform EBS, its highest level since August 2010. It last stood at 86.42 yen, up about 0.4 percent from late U.S. trade on Thursday.
The dollar faced resistance at 87.10 yen, which was a major double low in late 2008 and early 2009, and also at 87.47 yen, which is the 61.8 Fibonacci retracement of its move down from 94.99 yen in May 2010 to its record low of 75.31 set in October 2011.
The dollar is all but certain to end the week above its 200-week moving average, now around 84.95 yen, for the first time since the week ending Dec. 23, 2007, a technical signal portending further gains.
"A lot of people are looking for 90 as a reasonable target," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
"The only way we're going to get there is through a sea change in policy, and this one has some real momentum behind it," Wilkinson said.
The yen also fell against the euro, touching its lowest level in about 17 months. The euro soared to 114.66 yen, the single currency's strongest level against the yen since July 2011. It last stood at 114.54 yen, with a test of its 200-week moving average at 115.00 yen in sight.
Friday is Japan's last trading day of 2012, with markets scheduled to reopen on Jan. 4. The yen is on track for a drop of more than 12 percent against its U.S. counterpart in 2012, its biggest fall since 2005.
The euro traded at $1.3246, up about 0.1 percent from late U.S. trade, though shy of an 8-month high of $1.33085 hit last week, as investors awaited the latest developments on the U.S. fiscal stalemate.
Republican leaders in the House of Representatives told their members to be back in Washington from the Christmas holiday break on Sunday in case they need to vote on budget measures, leaving the door open to a last-minute solution to the impasse.