* Aussie gains over 2 percent on U.S. dollar after RBA drops easing bias * Kiwi climbs over 1 percent versus greenback * Dollar gains on euro and yen * Selling of yen by Japanese banks supports dollar/yen -trader By Daniel Bases NEW YORK, Feb 4 (Reuters) - The Australian dollar rose more than 2 percent on Tuesday after the country's central bank dropped its easing bias toward interest rates and toned down its long-term call for the currency to weaken. The U.S. dollar and euro gained back some ground against the yen but were firmly in recent ranges, reflecting the drop in volatility that accompanied the flood of money out of emerging economies in search of traditional safe havens in the developed world. "Most of the market was short Aussie and Kiwi into last night. The RBA (Reserve Bank of Australia) surprised them hawkishly. The fact that the world is not going to end, even if China slows down according to the RBA has taken somewhat the boot off of the neck of risk," said Lane Newman, director of foreign exchange at ING Capital Markets in New York. The Aussie has fallen by almost a fifth in the past 12 months as a commodities boom expired, growth in China began to slow and the central bank campaigned for a weaker currency to help stir economic growth. Against the U.S. dollar the Aussie was up 2.17 percent at US$0.8937. The New Zealand dollar accelerated its rise against the greenback in late New York trade, to gain 1.58 percent on the day, to US$0.8210. There had already been signs of a turnaround in the Aussie's performance against the New Zealand dollar in the past week. A favorite trade for hedge funds late last year, the kiwi gained 9.5 percent against the Aussie between October and Jan. 24. Since then the Aussie has reclaimed around 3 percent. While the New Zealand economy continues to do better than its Australian counterpart, analysts say a full percentage point of rate hikes are now fully priced in, leaving room for some pull back. The euro dropped below $1.35 against the dollar, revisiting Monday's two-month low of $1.3475 before cutting the majority of its losses. "Part of the reason why the euro is not really participating in the moves today where the dollar is weaker, has to do with this fear the ECB (European Central Bank) is going to ease policy again on Thursday," said Jens Nordvig, head of G10 FX strategy at Nomura Securities in New York. Ahead of the ECB's meeting, the euro traded down 0.07 percent to $1.3515. "I think there are reasons why they should do it but I am not convinced that they will," Nordvig said. YEN DIP The Aussie's jump came as the yen eased back from a two-month high versus the U.S. dollar, though its losses were tempered by fragile sentiment after a disappointing reading on U.S. factory activity stirred concerns about the growth outlook. A stronger start for U.S. equities that appeared to break the downward spiral of global markets for the past several days is helping bolster the greenback as safe-haven risk ebbs ever so slightly. The U.S. dollar was up 0.65 percent at 101.64 yen, staying above Monday's low of 100.77 yen, its lowest level against the Japanese currency since Nov. 21. Yen-selling flows from Japanese banks helped lend support to the dollar, said a trader for a European bank in Tokyo. A Singapore-based trader cited dollar-buying by Japanese importers. The yen, a big loser against the dollar in the past year, has seen a turnaround in the past week on the back of the sell-off in emerging markets. The dollar hit a peak of 105.40 yen in January. Many analysts believe the flow of money out of the developing world will continue as the U.S. Federal Reserve proceeds with reductions in its bond-buying stimulus. A mixed report on U.S. factory orders, where new orders fell in December but rose for a third straight month when the volatile transportation sector was excluded, tempered Monday's poor reading on U.S. manufacturing. The euro gained 0.6 percent against the Japanese currency at 137.32 yen, having earlier touched a better-than two month low of 136.20.