(Updates prices, adds quotes, changes byline)
By Simon Falush
LONDON, Dec 27 (Reuters) - The yen fell to its lowest in around 1-1/2 months versus the euro on Thursday, as higher commodity prices lifted European equities and broadly boosted risk appetite in holiday-thinned markets. Oil prices have risen strongly since the start of the week and went as high as $96 a barrel CLc1 on Thursday before retreating slightly, while gold held near a one-month high <XAU=>.
European equities gained, led by mining stocks, while in the foreign exchange markets investors bought high-yielding currencies of commodity producers such as Australia.
This in turn put pressure on the yen, which is often used as a source of cheap funding for such trades. Expectations that the Bank of Japan will delay raising interest rates until well into 2008 reinforced the yen's status as a funding currency.
"We've had friendly stockmarkets so there has been less risk aversion and that has seen investors sell the yen," said Antje Praefcke, currency strategist at Commerzbank Corporates and Markets in Frankfurt.
At 1120 GMT the euro was trading at 165.84, just below a seven-week high of 165.89 yen according to Reuters data <EURJPY=>.
The Japanese currency -- which often trades as a proxy for the tightly controlled Chinese yuan <CNY=CFXS> -- failed to benefit from a jump in the dollar/yuan exchange rate.
Another strong mid-point set by China's central bank implied a shift in FX policy towards faster yuan appreciation [CNY/].
The dollar was up 0.1 percent versus the yen at 114.42 <JPY=> while the euro was down 0.1 percent at $1.4502 <EUR=>
Analysts said light post-holiday volume was exaggerating price movements, but some traders said the dollar was starting to look vulnerable again and the currency's broad month-long rebound could be ending.
The dollar was also under pressure, trading around its lowest level against a basket of major currencies .DXY in two weeks as data returned focus on the parlous state of the U.S. housing market.
U.S. home prices in October posted their biggest annual drop in the history of the S&P/Case-Shiller national home price gauge [nN26350011], according to data released on Wednesday.
Investors may now focus on other U.S. economic data due this week. Durable goods orders for November and consumer confidence for December are due on Thursday, followed by new U.S. home sales for November on Friday.
"With many continuing to look for further recessionary indicators from across the Atlantic, any sharply lower than expected number here (in consumer confidence) could be sufficient to leave the greenback under further sustained pressure," said CMC Markets in a note to clients. (Editing by Ron Askew)