* ECB's Noyer says euro not unusually low * Rise in U.S. pending home sales supports dollar * Euro reverses loss vs dollar, move called anemic (Recasts, updates prices, adds quotes)

NEW YORK, June 2 (Reuters) - The yen dropped on Wednesday as the resignation of Japanese Prime Minister Yukio Hatoyama raised concerns about the outlook for the currency, given that his likely successor has said in the past he wanted a weaker yen.

The yen hit a two-week low against the dollar after Hatoyama and his deputy resigned to try to boost the ruling party's faltering fortunes in an election next month. For details, see [ID:nTOE65100Q]

The Japanese currency fell as investors focused on Hatoyama's expected replacement, Finance Minister Naoto Kan. Concerns about political instability were also weighing on the Japanese currency, analysts said.

Kan surprised markets earlier this year by saying he wanted the yen to weaken more and that most businesses favored a dollar/yen rate around 95 yen. Since then he has mostly toed the Finance Ministry line that stable currencies are desirable and markets should set foreign exchange levels.

Kan is a noted dove who has been an aggressive proponent of a lower yen in order to help stimulate Japanese exports, said Boris Schlossberg, a director of currency research at GFT, in New York.

With Japanese political situation in state of flux, the dollar may be the only safe-haven instrument left in the currency market for the time being, he added.

In mid afternoon trading in New York, the dollar was up 1.3 percent on the day at 92.17 yen, while the euro EURJPY=R gained 1.3 percent to 112.73 yen.

Some analysts said yen losses were limited as investors remained hungry for the Japanese currency, which has benefited from risk aversion stemming from the euro zone debt crisis.

YEN FUTURES

The June yen futures listed on the CME traded about 150 points lower on news of the Japanese prime minister resignation, said Kevin Cook, market analyst at option market market maker PEAK6 Investments in Chicago.

It looks like the move started last night or about 8:30 p.m., said Cook. There was an initial reaction that took the yen about 100 points lower against the dollar and then it just drifted lower overnight. Overnight we went from 1.10 to 1.085 on the June yen futures.

The reaction was relatively muted.

To put this in perspective on May 6, U.S. equities fell out of bed and the June yen futures went from 1.06 to 1.14 which dwarfs today's move, Cook said.

The dollar also rose as data released on Wednesday showed that pending sales of previously owned homes in the United States topped expectations to hit a six-month high in April. [ID:nN02163984]

If you look at this (report) from a yield and growth differential perspective, I think it's positive for the dollar, said Michael Malpede, a senior analyst at Easy Forex, in Chicago. If it weren't for the EU debt crisis, I'd be in the camp that says the Fed moves sooner rather than later on raising interest rates.

While the report was positive, analysts said the key data remains the government's monthly reading on non-farm payrolls due on Friday.

NOYER COMMENTS

The euro managed to gain 0.1 percent against the dollar to $1.2235, coming off the global lows of the day as the New York session wound down.

Earlier, the single currency fell after European Central Bank board member Christian Noyer was cited as saying the single currency's exchange rate against the greenback was at around a 10-year average and by no means an unusually low level. [ID:nSGE65105R]

Traders described the move late in the session as anemic at best, with perhaps higher U.S. stock prices indicating slightly more risk appetite.

It's a pause, that's all, said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York of the euro move. Nothing has changed from the European standpoint.

Analysts at ScotiaCapital said technical signals on the euro are mixed, but they expect further downside before the currency is able to sustain a rally. The next key level of support is the psychological $1.20, followed by $1.1835, the average level of the euro since its inception.

The euro hit a four-year low of $1.2110 on Tuesday, and remains sensitive to any signs the euro zone sovereign debt crisis might spread to the banking system of the 16-nation region.

Euro/dollar risk reversals are at extreme levels, showing a bias for puts at a bid of -3.5 on Wednesday, according to GFI data. Wednesday's figure was, however, off the highs from two weeks ago, which was at -3.73, the most bearish investors had ever been on the euro since GFI made its data available to Reuters in early 2007. (Reporting by Nick Olivari and Vivianne Rodrigues; Additional reporting by Steven C. Johnson and Getrude Chavez-Dreyfuss in New York and Doris Frankel in Chicago; Editing by Leslie Adler)

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