* Yen falls as Japan PM Hatoyama says to resign
* Eur/dlr steady; Iran reportedly to sell euros
* Traders wary of taking on more short euro positions
* ECB's Noyer says euro not unusually low; US data in focus
(adds comments, updates prices)
By Jessica Mortimer
LONDON, June 2 (Reuters) - The yen fell on Wednesday after the resignation of Japanese Prime Minister Yukio Hatoyama, particularly as his likely successor has in the past taken a tougher stance in fighting yen strength.
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. [ID:nTOE65100Q]
Analysts said concerns about political instability were weighing on the Japanese currency, though the focus was on Hatoyama's expected replacement, Finance Minister Naoto Kan, because he has previously advocated a weak yen.
Kan surprised markets earlier this year by saying he wanted the yen to weaken more and that most businesses favoured a dollar/yen rate around 95 yen. Since then he has mostly toed the ministry line that stable currencies are desirable and markets should set foreign exchange levels.
"If the position does fall to Kan, then the bias will be towards a slightly weaker yen," said Gavin Friend, currency strategist at nabCapital.
At 1042 GMT, the dollar was up 1 percent at a two-week high around 91.97 yen JPY=, while the euro EURJPY=R gained 1.2 percent to 112.37 yen.
Against the dollar, the euro EUR= was steady at $1.2227 in volatile trade, weighed down after Iran's state-owned Press TV said on its website that the Iranian central bank would sell 45 billion euros from its foreign exchange reserves to buy dollars and gold. [ID:nnLDE651111]
The euro took a knock earlier after European Central Bank board member Christian Noyer was cited as saying the single currency's exchange rate against the dollar was at around a 10-year average and "by no means an unusually low level". [ID:nSGE65105R]
However, it recovered after government sources in Brazil, India, Japan and South Korea said they would not stop investing in the weakening currency. [ID:nTOE650069]
Traders also said investors were wary of renewing short euro positions after taking a hit from the currency's sharp upswing on Tuesday following its slide to a four-year low.
"The overall picture is one of negative sentiment on the euro, but you have to be wary as the market is very short," nabCapital's Friend said.
The euro stayed close to the four-year low of $1.2110 hit on trading platform EBS on Tuesday, with the currency sensitive to any signs the euro zone sovereign debt crisis was spreading to its banking system.
"Very few investors are ready to put on long euro/dollar positions, and any spikes are due to profit taking on short positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.
The U.S. dollar .DXY rose 0.3 percent against a basket of currencies to 86.898, hovering below a 15-month high as market players looked ahead to U.S. jobs data on Friday which is expected to provide more evidence of a strengthening economy. [ID:nN01175887]