The yen rose to two-week highs while the U.S. dollar clung to gains on Monday as jittery investors cut back long positions in growth-linked currencies.

Traders said the drop in high-yielders like the Australian and New Zealand dollars is partly due to a correction after the rally in the past few months. Also, weighing on sentiment was news that CIT Group filed for bankruptcy.

The yen rose to as high as 89.17 per dollar in early Asian trade, from around 90.00 per dollar late on Friday when it gained over 1.5 percent. It was also firmer against the euro and the Aussie.

The euro inched up to $1.4715, from $1.4708 late on Friday when it lost over 0.8 percent. The Aussie, having lost nearly 2 percent on Friday, fell to a near one-month low of $0.8900 before recovering to $0.8970.

The U.S. dollar, which tends to gain when doubts about a global recovery emerge, traded above the 76 mark against a basket of currencies.

It has been a pretty violent move and I think it is partly to do with positioning, said Jonathan Cavenagh, currency strategist at Westpac. The economic data has not been all that bad, so I think it should be a good opportunity to rebuild long positions in commodity currencies.

Such long positions would have been very profitable over recent months and investors could be seeking to lock in gains for year-end and bonus season.

There was also upbeat news from Chinese manufacturing data at the weekend. China's PMI rose to an 18-month high of 55.2 in October, indicating an acceleration in output and boding well for growth-linked currencies.

Latest data from the Commodity Futures Trading Commission showed speculators trimming long positions in the euro, the Aussie and the Kiwi. The value of the dollar's net short position fell to $15.61 billion in the week ending October 27 from $18.65 billion net the prior week.

Traders said the mood was likely to remain cautious ahead of big event risks in the week ahead, which include central bank meetings in Australia, Europe and the U.S. and the all important U.S. non-farm payroll data on Friday.

The Federal Reserve's rate setting committee, which meets on Tuesday and Wednesday, is expected to keep rates unchanged but there is speculation that it might change its language. That could see markets pricing in a rate hike in the United States sooner than expected.

We see the Fed reiterating that 'economic conditions are likely to warrant exceptionally low levels of the fed funds rates for an extended period', said David Watt, senior currency strategist at RBC Capital.

In the UK, the focus is on whether the Bank of England will increase its asset-purchase program to give a boost to its economy.

In contrast, the Reserve Bank of Australia is expected to raise rates by a quarter of a percentage point, with Governor Glenn Stevens and the monetary policy Statement later in the week to provide perspective.

The European Central Bank is also expected to hold rates steady, but it could provide some details on the schedule of open market operations for 2010.

(Editing by Wayne Cole)

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