FOREX-Yen recovers, G7 exchange rates statement awaited
* Yen falls after U.S. official Brainard comments, recovers later
* Brainard says U.S. supports Japan's efforts to fight deflation
* Yen rebound to be short-lived
* G7 to publish statement on currencies at 1000 GMT
LONDON, Feb 12 (Reuters) - The yen recovered against the euro and the dollar on Tuesday as speculators took profit after it slid on comments from a U.S. Treasury official which implied more tolerance of a weaker yen.
Strategists said the Japanese currency's recovery would be short-lived as investors would buy the dollar and the euro on dips against the yen.
The market was also braced for statement on exchange rates from the Group of Seven industrialised countries, due at 1000 GMT.
Comments by U.S. Treasury Under-secretary for International Affairs Lael Brainard late on Monday that the United States supports Japanese efforts to end deflation, were interpreted by markets as an acceptance of a weak yen..
The euro was down 0.5 percent at 125.82 yen. It hit a nearly three-year high of 127.71 yen on Feb. 6.
The dollar was down 0.2 percent on the day at 94.12 yen, not far from 94.465 yen, its highest since May 2010 hit after Brainard's comments. A UK bank was cited as the main seller of the pair.
Strong resistance, as well as options positions and stop-loss orders, were said to lie at 94.50 yen.
Brainard stressed that the Group of 20 needed to deliver on a commitment to move to market-determined exchange rates and refrain from competitive devaluation.
The Bank of Japan holds its regular meeting on Wednesday and Thursday, and is expected to keep policy steady.
"Today we have no strong new material to sell the yen more, so that's why I think it's natural to buy back the Japanese yen," said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
In addition to Brainard's comments, European Central Bank policymaker Jens Weidmann dismissed talk of intervening to weaken the shared currency on Monday.
The euro was down against the yen and the dollar as investors remained cautious before the G20 meeting later this week, at which leaders could address its recent rise.
The euro was down 0.1 percent on the day at 1.34065, with model funds cited as the main sellers of the single currencies. Option barriers then $1.3400 and then $1.3425 could cap its further rise.
Strategists said most speculators would remain buyers of the euro on dips with stop-loss sell orders below $1.3340. The euro fall helped the dollar index to a one-month high of 80.484 on Tuesday.
Concerns about the terms of a bailout for Cyprus, which will be high on the agenda at a meeting of European Union finance ministers, would also limit the euro's gains, analysts said.
There are also growing worries about Spain's political scandal, while confidence in Italy has been shaken in the run-up to the Feb. 24-25 election.
"The euro sell-off is quite modest but reflects a general risk-off sentiment and also fears the European politicians might talk about the euro's strength at the G20 meeting," Danske's Rasmussen said.
However, he added that the euro's general rising trend was probably intact and worries about Spain and Italy and the bailout for Cyprus would be minor bumps along the way.
"We recommend our clients buy the euro on these dips as we think the euro recovery will continue," Rasmussen said, adding the ECB would not revert to unconventional measures and that its monetary policy would be out of sync with other major central banks which would continue to pump in stimulus.
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