Dollar stands tall vs yen, euro as risk aversion eases

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar stood tall against the yen and euro on Tuesday as global risk aversion that battered the greenback the previous week eased.

The dollar was little changed at 114.435 yen , having gained more than 1 percent overnight.

It pulled away from a 16-month low of 110.985 struck last week when a sharp slide in equities worldwide boosted demand for the safe-haven Japanese currency.

"I believe market pessimism, particularly towards the U.S. economy, that took hold at the start of the year was exaggerated," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

"Thanks in addition to the stance shown by the Japanese authorities to stem the yen's appreciation, I see the dollar recovering towards 120 yen. But we will need to see additional factors that point to a U.S. economic recovery."

In wake of the yen's big rally, Japanese Prime Minister Shinzo Abe said Monday that Tokyo would take action against "excessive currency volatility."

The euro, which soared to a 4-month high of $1.1377 last week, was flat at $1.1165 after losing 0.9 percent on Monday, when market movements were slightly exaggerated as the U.S. markets were closed for a national holiday.

The common currency was also weighed down after European Central Bank President Mario Draghi said on Monday the central bank was ready to ease policy further in March, highlighting risks from financial market volatility, a global slowdown in growth and low oil prices.

The dollar index <=USD> was up 0.5 percent at 96.652.

Sterling remained under pressure after Bank of England policymaker Ian McCafferty said inflationary pressures had fallen, although he still expected the next interest rate move to be up.

Sterling traded little changed at $1.4441 after slipping 0.5 percent overnight.

Commodity-linked currencies like the Australian dollar fared better following gains in crude oil prices. The Aussie nudged up 0.1 percent to $0.7144 , adding to Monday's 0.5 percent gain.

"Improving risk sentiment, European shares rose sharply for the second consecutive session on Monday, boosted by a rebound in banking stocks. [.EU]"

(Editing by Kim Coghill)