TOKYO, June 25 (Reuters) - The dollar was on the defensive on Friday on doubts about a recovery in the U.S. economy while short covering and a general wariness towards riskier assets kept the yen near a one-month high against the greenback.

Traders said quarter-end inflows were lending support to the yen JPY=, with Japanese exporters selling the euro.

At the same time, options barriers at 89 yen and below are likely to check the Japanese currency's gains, traders said.

In Asian trade, the dollar stood at 89.65 JPY=, up 0.1 percent from late U.S trade on Thursday, when it lost about 0.4 percent. Traders said short-term momentum favoured an eventual break lower for a test of 87.95 yen, the May 6 low.

Traders said many investors who had gone short of the yen earlier this month on speculation that Japan's new Prime Minister Naoto Kan will support a weaker yen were unwinding those positions.

Also helping the yen was the Federal Reserve's dovish statement this week, which contributed to a further fall in already low Treasury yields.

The Fed on Wednesday renewed its promise to hold interest rates very low for an extended period, as expected, but also acknowledged a faltering pace of U.S. recovery.

Things are not looking good for the dollar, said Hideki Amikura, deputy general manager of FX trading at Nomura Trust and Banking.

The U.S. economy is not as healthy as people had expected, with comments from the Fed backing up that view.

The dollar could fall further against the yen after the Group of 20 leaders' summit on June 26-27 in Canada, though short covering before the event could give it a near-term boost, Amikura said.

The dollar index was flat on the day at 85.76 .DXY, with traders expecting it to test support at 85.09, this week's low, in the near term as softer yields keep it on the defensive.

U.S. economic reports on weekly initial jobless claims and durable goods orders for May on Thursday were relatively firm yet could not lighten the market gloom.

The euro was little moved at $1.2330 EUR=, retaining gains made on Thursday when quarter-end real money buying helped the currency despite the ongoing worries about the euro zone's debt and financial sector.

Still, gains in the euro are likely to be checked by losses in stock markets, with the currency remaining highly correlated with the S&P 500 index .SPX at a solid 63 percent.

S&P 500 stock futures SPc1 inched up 0.3 percent on Friday in Asia, while Tokyo's Nikkei stock average .N225 dropped 1.5 percent, prompting investors to feel more nervous about risks.

The FX market should continue to take its lead from the stock market with further pressure in the risk market suggesting continued outperformances in the yen and the U.S. dollar at the cost of high beta currencies, JP Morgan said in a morning note.

Against the Japanese currency, the euro was little moved at 110.43 EURJPY=R after falling as low as 110.24 yen.

The Australian dollar dipped 0.1 percent to $0.8663 AUD=D4, having lost 0.9 percent on Thursday as investors booked profits in high-yielding currencies after the recent rally earlier this week.

The Aussie was seen supported at $0.8650, close to its 10-day moving average, with stops seen being placed down around $0.8605.

China's central bank set the yuan's daily mid-point CNY=SAEC at 6.7896 par dollar on Friday, the highest level since the July 2005 revaluation. It meant China has allowed its reference rate to rise 0.6 percent this week since it announced a change in the yuan exchange regime at the weekend.

The euro and the Australian initially edged up on the news then quickly gave back gains.

Trading the U.S. dollar against currencies such as the Australian dollar and the euro based on short-term moves in the yuan had become a market fad earlier this week but such trading interest has waned. (Additional reporting by Anirban Nag in Sydney; Editing by Chris Gallagher)

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