* Dollar index <.DXY> holds key technical break
* Eyes on FOMC, Obama State of the Union address
* Regional German CPI points at benign inflation
(Adds quotes, updates prices)
By Tamawa Desai and Neal Armstrong
LONDON, Jan 27 (Reuters) - The dollar rose and the yen gained broadly on Wednesday as investors shied away from riskier assets on concerns about China tightening lending and U.S. monetary and political wrangling.
European shares were down 0.7 percent following losses in Asia and on Wall Street overnight.
"Concerns over China and Greece are still in the background. The uncertainty all this suggests is likely to keep risk on the back foot," said Gavin Friend, currency strategist at National Australia Bank. "I think equities have further to go on the downside and the period of pessimism can continue."
By 1036 GMT, the euro was down 0.2 percent at 125.86 yen <EURJPY=R> after hitting a nine-month low of 125.25 yen. The next downside target was seen near its April 2009 low of 124.38.
"Euro/yen and Aussie/yen in particular are vulnerable to a more disorderly decline should we see further weakness, given Japanese margin accounts on the Tokyo Financial Exchange were holding near record longs on these two crosses as of Friday," analysts at RBC Capital Markets said in a note.
The yen rose 0.2 percent versus the dollar to 89.43 yen <JPY=> after hitting a 6-week low of 89.14 yen on EBS.
News of artillery fire between North and South Korea also helped the yen, a reaction traders said stemmed from a dip in South Korean shares.
"In spite of Japan's insipid growth, chronic deflation, the risk of more quantitative easing and threat of intervention, the yen retains its safe haven status", analysts at State Street said in a note.
The euro hit a six -month low against the dollar, hurt by concerns about the fiscal health of Greece and other peripheral euro zone countries.
The premium investors demand to hold 10-year Greek debt rather than benchmark Bunds hit a fresh euro lifetime high.
The euro <EUR=> was down 0.1 percent at $1.4060, after hitting a low of $1.4022. Traders said option-related demand was evident ahead of $1.4000.
German consumer inflation data was due out later in the day, with weaker regional numbers pointing to benign price pressures in the euro zone this month. [ID:nLDE60P2AE]
Eurogroup head Jean-Claude Juncker told French business daily Les Echos he was unhappy with imbalances that have produced an overvalued euro. [ID:nPAB008125]
FED, OBAMA EYED
The U.S. Federal Reserve will conclude a two-day policy meeting against the backdrop of a Senate debate over Chairman Ben Bernanke's reconfirmation. Analysts expect little change to a statement due out at around 1915 GMT. [ID:nN26106537]
Markets were also focusing on U.S. President Barack Obama's State of the Union address. [ID:nN25224485] Last week, Obama proposed sweeping reforms to curb risky lending by banks, which spooked financial markets.
The dollar index <.DXY> <=USD> rose 0.1 percent to 78.52 after closing above its 200-day moving average on Tuesday for the first time since early May 2009.
Investors remained nervous China's tightening measures could curb growth and demand for exports from other economies.
The Industrial and Commercial Bank of China, the country's largest bank, said on Wednesday it has stopped rolling over some loans to slow credit growth. [ID:nSGE60Q05X]
The Australian dollar rose 0.1 pct on the day against the U.S. dollar <AUD=D4> as a rise in consumer prices reinforced views the Reserve Bank of Australia will raise rates next week.
The Aussie also dipped below 80 yen, its lowest since mid-December last year. (Additional reporting by Tamawa Desai; Editing by XXX)