FOREX-Dollar rises versus yen, economy worries weigh on euro

* Dollar hits two-month high versus yen

* Japan's Aso (Taiwan OTC: 8443.TWO - news) says must retain FX intervention as policy tool

* Yen hurt by strong equities after dovish Yellen comments

* Euro falls on weak French GDP data

By Jessica Mortimer

LONDON, Nov 14 (Reuters) - The dollar rose against the yen and the euro on Thursday after Japan's finance minister said currency intervention was still a policy option and data showed the French economy contracted in the third quarter.

The dollar rose 0.6 percent on the day to a two-month high of 99.935 yen after Taro Aso's comments but stopped just below resistance at 100 yen. The low-yielding yen was also hurt by equity market gains.

Shares rose after Fed chairman nominee Janet Yellen suggested in remarks released before her Senate confirmation hearing later on Thursday that she was in no hurry to start trimming the central bank bond purchases.

"The comments from Japan have put the focus back on the currency again," said Ian Stannard, head of European currency strategy at Morgan Stanley (Xetra: 885836 - news) .

"As initiatives are put in place dollar/yen will move higher," he said, adding that Morgan Stanley forecast it to rise to 105 yen by year-end.

The dollar also firmed against the euro, which struggled after the unexpectedly weak French data and figures showing German growth slowed. Flash euro zone data was due at 1000 GMT.

The euro was down 0.2 percent at $1.3460, having earlier hit a one-week high of $1.3499. The dollar was up 0.1 percent against a basket of currencies at 80.992.

The U.S. currency largely shrugged off Yellen's prepared remarks. Analysts said traders were wary she could be less dovish in the subsequent Q&A session.

"While the opening statement was tilted towards the dovish side Yellen may start to sound a little more hawkish during the Q&A," Morgan Stanley's Stannard said. "She may have to provide reassurances ... that the Fed has the tools to exit QE."

Any euro gains were seen limited after last week's European Central Bank rate cut and after ECB Executive Board member Peter Praet raised on Wednesday the prospect of the central bank adopting negative interest rates or buying assets from banks.

"I expect further euro/dollar downside towards $1.30 in the weeks ahead. $1.35 held overnight and if it does so today that may signal that we have found a new post-ECB meeting top," Societe Generale (Paris: FR0000130809 - news) currency strategist Kit Juckes said in a note to clients.

The pound hit a four-year high against the yen and rose against the euro after Bank of England Governor Mark Carney on Wednesday gave an upbeat assessment of the UK economy.