* Yen off multi-month highs vs USD & EUR
* Minutes of Fed meeting lift U.S. stocks, help improve risk demand
* HSBC's China PMI report next in focus
By Ian Chua
SYDNEY, May 22 The yen was on the defensive in early Asian trade on Thursday, having retreated from multi-month highs against the euro and dollar as an improvement in risk appetite dampened demand for the safe haven currency.
The dollar fetched 101.46 yen, well off a 3-1/2 month low of 100.80 plumbed overnight. Similarly the euro at 138.80 was off its 3-1/2 month trough of 138.15.
The reversal had helped both the dollar and euro end flat against the Japanese currency in New York. Traders said the move also highlighted the market's reluctance to break the prevailing trading ranges.
Against the greenback, the euro staged a recovery from a three-month low of $1.3634 to $1.3686, ending the session in New York with only a modest 0.2 percent decline.
Trading was a bit choppy around the release of minutes of the Federal Reserve's late April meeting, which showed policymakers discussed exit strategies from ultra-loose monetary policy.
But they also made clear that the Fed was not signalling that it was ready to "normalize" policy or raise interest rates any time soon.
"With the Fed not concerned about the inflation outlook, and the first rate rise not expected until mid-late 2015, the USD lost ground after the minutes, while U.S. stocks gained," said Spiros Papadopoulos, senior economist at NAB in Melbourne.
U.S. stocks rose with the Dow Jones industrial average rallying 1 percent, giving Asian stocks a positive lead.
Speeches by Fed officials, including Minneapolis Fed President Narayana Kocherlakota, also underscored the Fed's dovish stance.
"Against this backdrop, U.S. front-end yields have remained stubbornly low, unable to sustain a brief tick higher heading into the minutes release," analysts at BNP Paribas wrote in a note to clients.
This, in turn, was keeping the dollar pinned down, traders said.
The standout performer was sterling, which hit a 5-1/2 year high on a trade-weighted basis thanks in part to data showing a surge in retail sales last month.
Also helping, minutes of the Bank of England's May meeting revealed that some policymakers were starting to think that the case for keeping rates on hold was now more finely balanced, suggesting the BOE may be a step nearer to raising rates.
Against the euro, sterling climbed to a 17-month high of 80.83 pence per euro. It hit a near two-week high of $1.6922 against the dollar.
In the hours ahead, all eyes will be on a private survey of China's factory activity due around 0145 GMT, followed by euro zone purchasing managers surveys.
Any disappointment in the Chinese report could see risk aversion quickly return to the fore, an outcome that could give the yen a boost. (Editing by Shri Navaratnam)