FOREX-US dollar up versus euro, yen after Treasury auction

* US dollar recovers after drop on Russia's comments

* US Treasury sells $19 billion in 10-year notes

* Higher risk appetite fades, euro, sterling retreat

* Some doubts about strength of global recovery linger

(Adds comments, details. Changes byline)

By Vivianne Rodrigues

NEW YORK, June 10 (Reuters) - The U.S. dollar rose against the euro and the yen on Wednesday after the government sold $19 billion in 10-year notes, easing investors' fears about the United States' ability to sell long-term debt to help finance a ballooning budget deficit.

The dollar fell earlier after Russia's central bank said it will diversify its currency reserves by cutting U.S. Treasury purchases and buying IMF-backed bonds. But analysts said any Russian plans to diversify away from dollars would take time. [ID:nLA1052951]

The Treasury Department sold 10-year notes at a high yield of 3.99 percent as part of a combined sale of $65 billion in government debt this week. Wednesday's auction was the first real test of the government's long-term borrowing ability since investors began to wonder last month whether its prized AAA credit rating may be living on borrowed time.

"There were concerns about appetite for Treasuries. The results of this auction have put to rest those concerns for the time being and any peripheral fears about the dollar as a safe store of value have also been put aside," said Michael Woolfolk, senior currency strategist, at The Bank of New York Mellon in New York. "This is positive for the dollar overall."

Traders also said the euro's rise to $1.4145 earlier EUR=EBS triggered automatic sell orders that pushed it to $1.3952 before moving to $1.3952, down 0.7 percent.

Also, some analysts said lingering doubts about the strength of any economic recovery capped high-yielding currencies and stocks.

"These are rather violent markets without huge conviction, so when the euro got a bit heavy, people headed for the door," said Firas Askari, head of FX trading at BMO Capital Markets, adding "it pays to be nimble right now."

The dollar rose 0.9 percent to 98.27 yen JPY=EBS while sterling retreated from a $1.6473 peak to trade at $1.6276 GBP=D4, up 0.2 percent. Earlier gains came on data showing the first rise in UK industrial output since February 2008.

The U.S. dollar saw a sharp fall against major currencies on Tuesday, after a jump last week in the wake of better than expected U.S. employment data.

RESERVE HOLDINGS

Russia's plans to diversify its reserve holdings, detailed ahead of next week's Moscow meeting among heavyweight emerging market countries China, Brazil, India and Russia, sent U.S. Treasury yields higher early Wednesday and initially added to broad-based dollar selling.

Russia holds about 30 percent of its $404.2 billion foreign exchange reserves in Treasuries, making it the fifth largest holder of U.S. government debt. [ID:nLA1052951]

But analysts said Russia's roughly $140 billion in long-dated U.S. Treasuries pales in comparison to the sheer volume of outstanding debt. The Treasury plans to issue some $2 trillion this year alone.

With the U.S. budget deficit expected to hit about $1.8 trillion this year and rise further from there, "of course Russia, China, everyone wants to diversify their holdings in the long run," said Firas Askari, head of FX trading at BMO Capital Markets, in Toronto.

"But they're all long Treasuries and can't just dump them at once," he added. "The U.S. Treasury market is still the deepest and most liquid available."

In the Treasury market, bonds extended their losses after the debt auction. The benchmark 10-year note yield rose to 3.97 percent after the sale and near its highest level since November.

Boris Schlossberg, director of FX Research at GFT Forex in New York, said recent auctions have attracted sizable demand despite rising yields and U.S. budget deficit concerns.

"For the time being, I think (the Russia comments about the dollar) are a tempest in a teapot," he said.

(Additional reporting by Steven C. Johnson and Gertrude Chavez-Dreyfuss in New York)