* Kiwi dollar falls to 5-month lows
* RBNZ independence seen uncertain
* Dollar rises vs. yen
* Euro steady
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
LONDON, Oct 24 (Reuters) - The New Zealand dollar was the biggest mover in relatively stable trade in G10 currencies on Tuesday, falling to a five-month low after the incoming Labour government outlined its policies.
The government reaffirmed a commitment to reduce immigration, raise the minimum wage and ban foreigners from buying local homes, seen by investors as a unfriendly to investment from abroad.
But the most pressing concern, analysts said, was a plan to review and reform the central bank's mandate to possibly include employment alongside inflation as a dual target.
"It (the plan) has had a negative effect on the Kiwi because having a dual mandate is likely to keep the Reserve Bank of New Zealand a lot more dovish than it currently is. It's got quite a neutral stance at the moment," said Martin Arnold, currency strategist at ETF Securities in London.
"They're probably going to have to keep policy quite accommodative for some time if they're going to have the dual mandate of inflation as well as full employment like the Federal Reserve."
The Kiwi dollar has lost nearly 5 percent after the Labour Party secured power following an election last month.
It was last over half a percent lower at $0.6965 by afternoon trade in Europe.
The dollar index, which measures the greenback against a basket of peers, edged lower, stepping back from recent highs as market attention turns to who will be the next head of the U.S. central bank. It was down 0.1 percent at 93.848.
U.S. President Donald Trump told reporters on Monday he is "very, very close" to deciding who should chair the Federal Reserve after interviewing five candidates for the position.
These include current Fed Chair Janet Yellen, whose term expires in February, as well as Fed Governor Jerome Powell, Stanford University economist John Taylor, Trump's chief economic advisor Gary Cohn, and former Fed Governor Kevin Warsh. (For a graphic on Fed Chair candidates, click here: http://tmsnrt.rs/2fPVp1I)
"It's a big question for the markets. It's one thing to speculate about it, but it's another to take an FX position," said Bart Wakabayashi, branch manager for State Street Bank in Tokyo.
"Still, the rumours trigger some selling and buying, on perceptions of who might be more dovish or more hawkish," he said.
The dollar also gained against the yen, up nearly half a percent at 113.94 yen per dollar and just below a 3-month top hit on Monday after the Japanese elections.
The euro added 0.1 percent to $1.1762, though its gains were expected to be capped ahead of the European Central Bank's policy meeting on Thursday, where the authority is expected to signal it will take small steps away from its ultra-easy monetary policy.
The euro has been pressured in recent weeks by Catalonia's separatist crisis. Madrid has invoked special constitutional powers to dismiss the Catalonian regional government and force elections to counter the independence movement.
A vote in the national Senate to implement direct rule on Catalonia is due on Friday.
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(Reporting by Ritvik Carvalho; Editing by Angus MacSwan and Richard Balmforth)