FOREX-Yen, dollar hold onto gains on rush from risk

* Yen retains gains as risky trades unwound

* Bernanke's testimony in focus after discount rate rise

By Rika Otsuka

TOKYO, Feb 24 (Reuters) - The yen retained hefty gains on Wednesday, aided by safe-haven inflows after a slide in U.S. consumer confidence to a 10-month low stoked doubts about the pace of a global economic recovery.

The data pushed stocks and commodities .CRB lower, keeping higher-yielding currencies such as the Australian AUD=D4 and New Zealand dollars NZD=D4 under pressure. The rush to safety benefitted U.S. Treasuries, with 10-year yields down a steep 10 basis points the previous day.

"Risk aversion moves are providing support for the yen and the dollar," said Tsutomu Soma, senior manager of the foreign securities department at Okasan Securities.

"There are few options but Treasuries for investors to buy as data has shown the U.S. economy is not as strong as previously thought," he said.

The fall in U.S. yields kept the dollar subdued against the yen JPY=, at 90.20 yen, having shed nearly 1 percent on Tuesday. The yen gains when risk aversion rises as investors unwind trades financed with the low-yielding Japanese currency.

But the U.S. dollar held onto sizable gains against other major currencies with the dollar index .DXY =USD at 80.75, not far from its 8-month peak of 81.34 hit last week.

The euro EUR= pared some losses made the previous day but remained under pressure after the German Ifo index of business sentiment dipped unexpectedly, while French household spending and Italian consumer confidence turned lower. [ID:nLDE61M0LN] [ID:nBAT005149]

It was further hurt by a downgrade of Greece's four largest banks by Fitch, bringing back the country's woes back to the forefront. [ID:nLDE61M27R]

The euro edged up 0.3 percent to $1.3542, having lost nearly 0.7 percent on Tuesday.

Traders said there could be a test of support at around $1.3480, which is the 61.6 percent retracement of its move up from $1.2447 to $1.5141 last year on the Fibonacci charts.

The euro inched up 0.3 percent to 122.15 yen EURJPY=R, lifted by speculation that hefty buying linked to launches of new Japanese mutual funds would boost higher-yielding currencies and assets in emerging countries. Still the gains were not enough to make up for its 1.7 percent-dive against the yen on Tuesday.

"With the action taking on a more impulsive bias and the daily patterns forming bullish reversals, the short term risks point to additional U.S. dollar strength," JPMorgan said in a daily note.

"We continue to see risk for the European currencies to extend their recent trends while holding current short positions in euro and the pound."

Sterling GBP=D4 was little changed at $1.5450, having lost over 0.4 percent on Tuesday after Bank of England policy makers said further asset purchases under its quantitative easing programme were possible.

The focus now shifts to Federal Reserve Chairman Ben Bernanke, who testifies before Congress on Wednesday and Thursday. Traders say, demand for beaten down risk assets and currencies could recover if Bernanke is upbeat about growth.

Investors will also be looking for any comments on the Fed's decision late last week to raise its discount rate -- the rate charged to banks for emergency loans.

"Bernanke is likely to reaffirm the Fed will carry out its exit strategy in a straightforward manner," said Masafumi Yamamoto, chief FX strategist Japan for Barclays Capital, adding that steps in this direction would lead to tightening liquidity for the dollar and be dollar supportive.

St. Louis Fed President James Bullard on Tuesday said that, if the economy performs as expected, rates were probably on hold into 2011 and that moves to take back some quantitative easing were the natural path. [ID:nNAT007288]

The market showed muted reaction to comments from Bullard as investors awaited Bernanke's testimony, traders said. (Additional reporting by Anirban Nag; Editing by Edwina Gibbs)