FOREX-Yen surges as stock market mood darkens

* Yen up half a percent for second day

* Trump legislative failures, valuations worry Wall Street

* Euro recovers from ECB concern

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Patrick Graham

LONDON, Aug 18 (Reuters) - The yen was the major mover among the G10 group of developed world currencies on Friday, gaining another half percent against the dollar as nerves over stock market valuations and the future of an 8-year global rally seeped into other assets.

The euro had recovered all of the ground it lost after European Central Bank policymakers warned of an overshoot in the currency in the minutes from last month’s policy meeting, to trade 0.2 percent higher at $1.1748.

Concerns over President Donald Trump's ability to push through the pro-growth measures financial investors had expected at the start of this year were at the heart of a second daily 1 percent loss for Wall Street on Thursday.

That drove flows into the traditional security of the yen and the Swiss franc, with nerves around another attack claimed by Islamic State, this time in Barcelona, feeding into the shaky mood.

Despite a recovery in the last fortnight, the dollar index that measures its broader strength against a basket of currencies is still just 1 percent above 13-month lows hit at the start of August.

"With President Trump’s support from both within and outside of the White House waning, the uncertain US political environment is likely to keep the dollar pinned down at these low levels," said Viraj Patel, a strategist with ING in London.

"It is difficult to find any other domestic catalyst to more than offset this negative factor and drive the dollar higher in the near term."

By 0718 the yen was trading 0.5 percent higher at 109.04 yen per dollar. The dollar index fell 0.2 percent to 93.472.

The yen often comes into favour in times of market stress, partly due to expectations that Japanese investors will eventually repatriate their overseas assets if such market turmoil persists.

How European and U.S. equity markets fare on Friday could prove crucial for the dollar's near-term outlook against the yen, said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.

"There is the risk that the yen might keep edging higher," he said.

"If the dollar falls below 109 yen, that could set the stage for a test of its year-to-date low of 108.13 yen," he added, referring to a trough the dollar hit in mid-April.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Masayuki Kitano in SINGAPORE; editing by Andrew Roche)

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