* Dollar drops against yen as Treasuries yields fall
* Investors turn risk averse before earnings season
* Focus on Fed meeting minutes due on Wednesday (Adds quote, details on yen, updates prices)
By Karen Brettell
NEW YORK, July 8 (Reuters) - The U.S. dollar fell againstthe Japanese yen on Tuesday as long-dated Treasuries yieldsdropped for a second day, with investors wary about stocksheading into the U.S. corporate earnings season.
The dollar has erased the gains it made against the yen on astrong U.S. employment report last Thursday that showed the U.S.economy continuing to gain strength. It has stabilized attwo-week highs against the euro.
Safety buying of long-dated Treasuries is seen as limitingdollar strength, at least in the near term, with investors waryabout the stock market at record levels heading into earningsseason.
"We've seen a bit of risk aversion in the market and thetendency for yields to fall in the U.S., and the dollar to fallin sync with it," said Sebastien Galy, senior foreign exchangeanalyst at Societe Generale (Paris: FR0000130809 - news) in New York. "It's driven byequities."
Two-year Treasuries note yields have risen abovethe key 0.50 percent level even as long-dated Treasuries yieldshave fallen, indicating near-term market jitters.
The dollar fell 0.29 percent against the yen onTuesday to 101.53 yen, down from 102.82 yen late on Monday.
Falling Treasury yields benefit the yen against the dollaras it makes U.S. bonds relatively less attractive, even thoughTreasuries still pay much higher yields than Japanese governmentdebt, said Marc Chandler, chief currency strategist at BrownBrothers Harriman in New York.
"The dollar is sensitive to U.S. interest rates and U.Sinterest rates are lower now than they were after we got thejobs data," Chandler said.
The spread between yields on 10-year Treasuries and Japanese equivalents contracted to 202 basispoints on Tuesday, in from 208 basis points last Thursday.
The next major focus for the market will be the release onWednesday of minutes from the U.S. Federal Reserve's Junemeeting, which will be scoured for signs about when central bankmembers see an interest rate increase as likely.
Analysts see the dollar as unlikely to rally further unlessthere are stronger indications from the Fed that a rate hike islikely to come sooner than expected.
Jeffrey Lacker, president of the Richmond Fed, said onTuesday that he sees inflation firming this year, and that datagathered in the last few months was not the "noise" that somethink, underscoring his hawkish view that inflation threats aregaining traction.
Minneapolis Fed President Narayana Kocherlakota is due tospeak later on Tuesday.
The dollar also fell 0.06 percent against the euro to$1.3613. The dollar has largely traded sideways against the eurofor the past three days, after an initial rally on Thursday'sU.S. jobs data.
The dollar index, which tracks the greenback againsta broad basket of currencies, dipped to 80.167, down from 80.218on Monday. (Editing by Peter Galloway and Nick Zieminski)