(Corrects 3rd paragraph to show dollar and euro fell vs yen and Swiss franc)
* Yen rises 2 pct versus dollar, euro as Nikkei tumbles
* Worries about Fed tapering QE, weak China PMI hit stocks
* Aussie hit hard by weak China data, fall in commodities
By Jessica Mortimer
LONDON, May 23 (Reuters) - The yen vaulted to two-week highs against the dollar and the euro on Thursday as a slide in equities encouraged profit-taking on the safe-haven currency’s recent sharp falls.
Concerns U.S. monetary stimulus could be scaled back, after testimony by Federal Reserve Chairman Ben Bernanke, and weak Chinese data triggered a 7.3 percent plunge in Japan’s Nikkei share index, its biggest one-day drop in two years.
The dollar and the euro both fell more than 2 percent against the yen, and lost 1 percent against the Swiss franc , also seen as a safe haven.
The dollar slid to a two-week low of 100.83 yen, having hit a 4-1/2 year peak of 103.74 yen after Bernanke told Congress the Fed could “in the next few meetings take a step down” in its bond buying.
Analysts said the dollar could drop further against the yen if equities continued to fall. But they expected the trend of yen weakness and dollar strength to remain given aggressive easing in Japan and the prospect of tighter U.S. policy.
With the dollar up almost 20 percent this year, analysts said the fall in equities provided the excuse for a correction.
“What’s happened in currency markets is all linked to stocks ... Dollar/yen had got to a new high and investors were quick to take profit on long dollar/yen positions,” said Niels Christensen, currency strategist at Nordea in Copenhagen.
“The correction has the potential to go further ... But there is no risk of a dramatic fall and any move below 100 should be brief.”
Some traders focused on Bernanke’s caveats that the central bank would need to see more improvements in the economy before reducing stimulus, even though Fed minutes showed some policymakers were willing to cut bond buying as early as June.
“The smart people who were long on the dollar/yen sold it at 103. On top of that, the Nikkei’s fall meant people had to unwind their FX hedges on equities and sell dollars,” said a trader at a major Japanese bank in Tokyo.
The yen’s gains were most dramatic against the Australian dollar, which tumbled more than 2 percent to a seven-week low of 97.33 yen after data showed factory activity shrank in China, Australia’s biggest export market.
The Aussie was hit by a sharp slide in commodity prices and fell around 1 percent against the U.S. dollar to $0.9593, its lowest in nearly a year. It came close to the June 2012 trough of $0.9581.
The euro slid to a two-week low of 129.945 yen, having touched a 3 1/2-year peak of 133.82 yen on Wednesday.
The single currency was up 0.2 percent at $1.2883, pulling away from a 6-week low of 1.2796 hit on May 17, helped slightly by data showing the downturn across euro zone businesses eased slightly this month.
But the data still pointed to another contraction in the euro zone in the second quarter. Analysts expected the euro to remain weak against the dollar given concerns the Fed will taper its QE programme while the European Central Bank could ease monetary policy further. (Additional reporting by Sophie Knight in Tokyo, editing by Nigel Stephenson)