FOREX-Yen slips to 3-1/2 month low vs euro as Syria concerns ease
* Safe haven yen slips as risk of strike on Syria diminishes
* Dollar stays under pressure with Fed policy outlook unclear
* Next week's Fed meeting main focus for markets
LONDON, Sept 10 (Reuters) - The yen fell to a 3-1/2 month low against the euro on Tuesday as international tensions over Syria appeared to ease, giving investors a chance to seek higher-yielding assets.
U.S. President Barack Obama said on Monday he saw a possible breakthrough in the crisis over Syria after Russia proposed that Damascus hand over its chemical weapons, which could avert U.S. military action.
The euro was up 0.7 percent at 132.925 yen, which was its highest since late May.
The dollar also rose 0.7 percent against the yen, climbing to 100.37 yen, a seven-week high. The dollar was up 0.3 percent versus the Swiss franc at 0.9347 francs.
Encouraging Chinese retail sales and factory output data released on Tuesday was also helping investor sentiment, analysts said.
"Geopolitical risks around Syria are a bit smaller and we also had some decent numbers out of China. This is a good combination to go into riskier currencies, so people are moving out of the classic safe havens like the yen and Swiss franc," said Arne Lohmann Rasmussen, head of FX research at Danske Bank.
Adding to the yen's weakness, minutes of the Bank of Japan's August policy meeting released on Tuesday showed members were confident that the central bank's aggressive monetary stimulus was helping lead to an economic recovery.
But the dollar stayed under pressure after disappointing U.S. jobs data last week that led to fresh doubts over the timing and pace of the U.S. Federal Reserve's plans to scale back its stimulus.
A Reuters poll on Monday showed economists expect the Fed to announce a modest reduction in its $85 billion monthly asset-buying programme by some $10 billion.
The dollar index, which tracks the greenback against a basket of six currencies, was up 0.1 percent at 81.904, still close to a near two-week low of 81.697 touched on Monday.
"We will likely see a further consolidation in the dollar which remains weak after last week's softer payroll report. Markets will now look to next week's Fed meeting," said Marcus Hettinger, global FX strategist at Credit Suisse.
"They will probably taper but still remain quite cautious."
San Francisco Federal Reserve Bank President John Williams said on Monday he is yet to make up his mind on supporting a reduction at the Fed's meeting next week.
The euro was flat at $1.3249, and was trading close to Monday's peak of $1.3281, its highest since Aug. 29.
Strong technical support lies around $1.3220, said Mitul Kotecha, global head of foreign exchange strategy at Credit Agricole Corporate and Investment Bank.
The euro has "easily quashed expectations that it would face a difficult time in the wake of a weaker growth trajectory and ongoing peripheral worries," Kotecha added.
Strategists, however, said the euro could suffer from a row in Italy over former leader Silvio Berlusconi, who has been convicted of fraud, that threatens to topple its ruling coalition government.