The dollar rose on Thursday, as a sharp decline in stocks lured investors into the safe-haven U.S. currency and on speculation the head of the Federal Reserve will not signal new initiatives to stimulate the economy.

The yen weakened to its lowest level in more than two weeks against the dollar, while the euro reversed earlier gains made on renewed risk appetite after news that Berkshire Hathaway would invest $5 billion in Bank of America.

U.S. stocks slumped about 1 percent, tracking weakness in European shares on talk that Germany may follow other European nations and enact a short-selling ban. A Finance Ministry spokesman told Reuters that Germany is not planning a general ban on short-selling.

The talk got equity markets selling and that negativity filtered into the currency markets, said Jessica Hoversen, FX analyst at MF Global in New York. That helped push the dollar higher. Basically, it's a rumor-fueled trade today.

Foreign currency trading remained largely range-bound as market participants awaited a key speech by Fed Chairman Ben Bernanke at a central bank conference on Friday in Jackson Hole, Wyoming.

Speculation the U.S. central bank head may signal a third round of bond buying, known as quantitative easing, has weighed on dollar sentiment in recent weeks, although investors have pared back expectations.

Over the last couple of days, we have gone from pure excitement about QE3 to being far more muted. I suspect there has been some positioning for a slightly more mundane speech coming from Bernanke, said Camilla Sutton, senior currency strategist at Scotia Capital in Toronto.

Under quantitative easing, the Fed effectively prints money to buy bonds, which would depress U.S. Treasury yields and encourage investors to seek higher returns elsewhere. An increase of money supply would also erode the value of the dollar relative to other currencies.

The dollar rose 0.6 percent to 77.39 yen, moving further off a record low of 75.941 set on trading platform EBS last week.

The dollar also hit a one-week high against the Swiss franc of 0.79898 franc before paring back to 0.7970, up 0.2 percent.

Boris Schlossberg, director of currency research at GFT in New York, said the dollar could pop against both low-yielding currencies if Bernanke does not signal new accommodative measures.

Should that scenario turn out to be true, the greenback could climb to 78.00 versus the yen and could finally retake the 0.80 barrier versus the Swissie as fears of further dilution of the currency begin to dissipate, he said.

Some analysts say even though a firm commitment to QE3 is unlikely, Bernanke may pledge readiness to act to help the economy if necessary, which could help riskier currencies including the Australian and New Zealand dollars after an initial knee-jerk drop.

The euro last traded down 0.3 percent at $1.4371.

Investors shrugged off a surge in Greek bond yields that was driven by fears that an escalating row over demands by Finland for collateral on Greek loans may derail the rescue package.

Analysts said that after Bernanke's speech the market's focus will likely move back to Europe's sovereign debt woes.

Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut, said continued support from China may limit euro weakness.

Chinese President Hu Jintao showed definitive confidence in the euro and the European economy despite some concerns, French President Nicolas Sarkozy said on Thursday after the two leaders met in Beijing.

China has not wavered in its support of the euro and the euro zone, Borthwick said. We believe China, other Asian central banks and Middle Eastern reserve manager's euro/dollar purchases will continue going forward at a gradual pace.

(Editing by Leslie Adler)