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FOREX-Yen gains as stock market mood darkens

(Updates prices, adds HSBC comments on yen, euro)

* 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 http://tmsnrt.rs/2egbfVh

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 on Thursday from last months policy meeting, trading 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 Trumps 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."

The dollar traded briefly below 109 yen per dollar before recovering to 109.13 yen. The dollar index, down almost a third of a percent in early trade had recovered to 93.508 by 0937 GMT, down 0.1 percent on the day.

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.

U.S. equity markets, however, were set to open flat on Friday and there were voices suggesting their gains had run their course for the moment.

"We expect the JPY and CHF to be relatively stable against the USD unless geopolitical risks intensify," HSBC strategist Daragh Maher said in a note to clients.

He also called for a weaker euro after Thursday's warning on the currency's strength from the ECB, and closed the bank's existing "buy" recommendation for the euro against sterling.

"Tactically, the euro is looking vulnerable," he said.

"The rally this year has been impressive but August has seen some of the upward momentum fade. Positive news is generating less of an impact and the latest batch of ECB minutes show a growing disquiet with EUR strength."

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s (Additional reporting by Masayuki Kitano in SINGAPORE; editing by Andrew Roche)