* Risk assets lifted by pick up in global manufacturing
* Dollar index off 4-week high, yen broadly softer
* Dollar still seen supported by prospect of end in Fed'S QE
* AUD rallies but wary before RBA meeting
By Hideyuki Sano
TOKYO, July 2 The dollar backed off from a four-week high against a basket of currencies on Tuesday as risk sentiment improved on stronger manufacturing data from major global economies, outweighing fears of a reduction in U.S. monetary stimulus.
The dollar index stood at 83.056, almost flat on the day but a tad below the four-week peak of 83.344 reached on Friday, with support seen at 82.915, the bottom of the daily Ichimoku charts.
"The market does not seem to be as vulnerable as it was a month ago (to the prospects that the U.S. Federal Reserve will withdraw stimulus). In a big picture, however, it is hard to think the dollar will fall," said Katsunori Kitakura, associate general manager of market making at Sumitomo Mitsui Trust Bank.
The euro held firm at $1.3053 after a 0.4 percent gain on Monday, keeping some distance from last week's trough of $1.29845, its lowest since early June.
Nevertheless, it stayed below chart resistance at $1.3106, the 100-day moving average, and the 200-day average at $1.3074.
The euro, also firmed against the yen to reach a three-week high of 130.26, but it likewise faced resistance around 130.45, the 61.8 percent retracement of its May 22 - June 13 decline.
Monday's manufacturing reports out of the euro zone, Japan, and Britain all showed improvement, including encouraging signs out of debt-burdened peripheral euro zone countries such as Spain and Italy, helping risk currencies.
The U.S. ISM report rebounded from an unexpected contraction in May, but hiring was the weakest in nearly four years. The latter was important as the Fed has made unemployment a key barometer for when it might start scaling back on asset buying.
Which is why the market is likely to become thinner and thinner into the monthly payrolls report on Friday. A strong reading would boost the dollar by fanning speculation about an early paring back of the Fed's $85-billion-a-month bond-buying.
In contrast, the European Central Bank is likely to emphasise at its monthly meeting on Thursday that the euro zone economy still needs help.
The dollar held almost unchanged at 99.55 yen, near a four-week high of 99.87 hit on Monday, though it has been unable to break strong offers in the 99.90/100.00 area.
Although the yen is seen under pressure from the Bank of Japan's aggressive monetary easing, traders say the market may need a fresh impetus to sell the Japanese currency after its steep decline in the past half year.
Concerns over a slowdown in China and other emerging markets could sour investors' risk sentiment and spark another rally in the yen, as it did in May, said Takako Masai, forex manager at Shinsei Bank.
"I do not expect the yen to sharply weaken beyond 100 per dollar," she said, noting that two-year yield gap between the two currencies remained small by historical standards, despite recent rise in U.S. bond yields.
The Australian dollar recouped some of its recent losses to reach $0.9250, having hit a three-year low of $0.9110 on Monday. It faces a test later in the session as the Reserve Bank of Australia (RBA) announces the outcome of its monthly policy meeting at 0430 GMT.
A Reuters poll of 23 analysts found all but two expected rates to stay steady at 2.75 percent, while the market implies a one-in-four chance of a cut.
The focus will be on the statement to see if the central bank keeps an implicit easing bias and for its take on the local dollar. Should the RBA reiterate that the currency is still too high, the market could take it as a green light to sell again.