* Yen gains, stays near 2-1/2 week high versus dollar
* Helped by falls in Japanese equities
* Euro edges up versus dollar, still helped after firmer Ifo
* Subdued trade as U.S. and UK markets closed for holidays
By Jessica Mortimer
LONDON, May 27 The yen rose on Monday, hovering near its highest in more than two weeks against the dollar, as another drop in Japanese shares continued to encourage investors to unwind dollar hedge positions.
Trading was quiet, however, with UK and U.S. markets closed for a public holiday.
The dollar was down 0.4 percent at 100.84 yen, near Friday's trough around 100.66 yen, its lowest since May 10.
Recent falls in shares triggered by concerns that the Federal Reserve could scale back monetary stimulus sooner than previously thought have boosted the safe-haven yen, as well as the Swiss franc.
But most analysts expect the yen to resume its downtrend, which has been sparked by the Bank of Japan's aggressive monetary easing in early April.
"We still think in the medium to longer term we will see a weaker yen. In the short term it is in a corrective phase, but the dollar should keep above 100 yen," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
Equity market weakness since U.S. Federal Reserve chief Ben Bernanke signalled last Wednesday that the Fed could start to roll back stimulus sooner than expected has forced investors to unwind dollar hedges on their Japanese equity portfolios.
That has prompting gains for the yen, helping it rebound from a 4-1/2 year low of 103.74 yen per dollar hit last week.
Japan's Nikkei share index fell 3.2 percent on Monday, although European shares firmed in early trade in a sign that the longer-term bullish trend for equities remained in place.
The dollar index was down 0.2 percent at 83.549 after dropping 0.7 percent last week.
Japan's central bank, in contrast to the Federal Reserve, may be expected to ramp up its already aggressive easing programme if economic indicators do not pick up, according to Ayako Sera, senior market economist at Sumitomo Mitsui Trust in Tokyo.
"A lot of people will be focusing on Friday's consumer price index data after one BOJ member said the 2 percent (inflation) target looks a bit difficult to achieve," she said, referring to minutes from the BOJ's last policy meeting released on Monday.
The euro was up 0.1 percent against the dollar at $1.2942, staying supported after data on Friday showed an improvement in German business morale.
The common currency was expected to face chart resistance before $1.30, including the 55-day moving average at $1.2983 and the 21-day average at $1.2997, with investors wary that the European Central Bank may opt to cut interest rates further.