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LONDON, Oct 10 (Reuters) The yen hit an 8-month low against the dollar on Tuesday as jitters lingered over North Korea's nuclear test, while the greenback was seen building support with focus on the U.S. rate outlook.

The yen, already under pressure due to its ultra-low interest rates, fell after Pyongyang said on Monday it had carried out an underground nuclear test.

Japan's proximity to North Korea prompted traders to sell the yen in a knee-jerk reaction, but analysts said Japan's low interest rate outlook compared with the United States and euro area was likely to keep the currency on the backfoot.

''If you look at the majors the dollar is still stronger against the yen and the euro on a closing basis. I think there's a bigger picture at play here where the markets have rasssessed the U.S.

monetary policy outlook,'' BOTM-UFJ currency economist Derek Halpenny said.

By 0830 GMT, the dollar was up 0.2 percent at 119.35 yen. The euro was steady at 150.14 yen, in sight of the record high of 150.78 struck in August.

The euro was up 0.2 percent at a 2-1/2 month high of $1.2566.

The yen came under renewed pressure in Asia as rumours circulated about a supposed report by Fox News that a second nuclear test had been completed.

The Fox Web site did not contain such a report, but it mentioned a story from South Korea's Yonhap news agency that quoted the country's chief of intelligence as saying it was possible North Korea could conduct a second test.

MORE FED TALK The dollar found support after last week's large upward revision to U.S. non-farm payrolls data had trimmed expectations for the Federal Reserve to cut borrowing costs anytime soon after it paused monetary tighening at 5.25 percent.

Markets have trimmed expectations for a cut in U.S. rates since the non-farm payrolls data and Federal Reserve officials backed up that expectation with recent comments.

San Francisco Fed President Janet Yellen said on Monday that risks were tilted toward higher inflation even as growth has slowed.

Dallas Fed President Richard Fisher is due to speak in London from 1350 GMT on ''Monetary Policy in the Globalised World''.

For more clues on the rate outlook, the market will scrutinise minutes from the September Fed meeting, due on Wednesday, to see if the central bank highlights either inflation risks or slowing growth.

''I think we will see a bit of both, growth is slowing -- they will acknowledge that but they will stress that the greater risks remain on inflation,'' BOTM's Halpenny said.

Earlier on Tuesday, data showed core Japanese machinery orders rose 6.7 percent in August from the previous month, falling short of forecasts for a stronger rebound after orders posted the biggest one-month drop in two decades in July.

The data did little to change expectations the Bank of Japan would stick to a very gradual path of raising interest rates from the current 0.25 percent.

Euro zone finance ministers were upbeat on Tuesday on economic growth. Eurogroup chairman and Luxembourg Prime Minister Jean-Claude Juncker said economic growth had reached a level which is quite robust, but added there could be a slight slowdown in 2007.

ECB President Jean-Claude Trichet testifies at the European Parliament later.

''A repeat of the relatively hawkish stance evident at the post-rate hike press conference last week is likely,'' Royal Bank of Canada said in a note to clients.

REUTERS KR VV1524