* Yen regains footing as sell-off on BOJ easing fades
* Dollar/yen drop extends on stop-loss selling
* Dollar may settle in 77-79 yen range -analyst
* Aussie falls after lacklustre China flash PMI
By Masayuki Kitano and Ian Chua
SINGAPORE/SYDNEY, Sept 20 The yen pushed higher against the dollar on Thursday, staying on a firm footing after staging a surprise bounce the previous day as an initial sell-off in reaction to the Bank of Japan's monetary easing fizzled.
The Aussie dollar retreated following a lacklustre reading on Chinese manufacturing activity, and the yen's rise gradually picked up steam after that, with stop-loss position unwinding adding to its momentum.
The U.S. dollar fell 0.4 percent to 78.09 yen, pulling away from a one-month high of 79.23 yen set on Wednesday after the BOJ boosted its asset-buying programme to help fuel the country's economic recovery.
"Technically, yesterday was a bit of a surprise. The reversal now suggests that we are back where we were ... So I think we will see a bit more of the range trading," said Andrew Robinson, FX analyst for Saxo Capital Markets in Singapore.
Rather than pushing on towards 80 yen, the dollar seems likely to trade in a range of roughly 77 yen to 79 yen over the next week or two, Robinson said.
The yen rose broadly, with the Australian dollar sliding 1.2 percent to 81.05 yen and the euro tumbling 0.8 percent to 101.41 yen.
There was talk of hedge fund selling in euro/yen, and traders said the greenback's drop against the yen gained steam due to loss-cut dollar selling.
The dollar's rise on Wednesday had stopped short of technical resistance near 79.27 yen on the daily Ichimoku chart, a popular technical analysis tool, and also below the 200-day moving average near 79.32 yen.
While the dollar's failure to clear such technical resistance could bode ill for its outlook, its downside may be limited as well, said a trader for a European bank in Tokyo.
"With regard to dollar/yen, I don't think there is much reason to sell the dollar on the downside, since there is wariness toward the potential for intervention," he said.
Jitters about the potential for yen-selling intervention by Japanese authorities had increased after the dollar hit a seven-month low of 77.13 yen on trading platform EBS last week, pressured by the U.S. Federal Reserve's announcement of aggressive monetary stimulus.
SENSITIVE TO CHINA
The Aussie dollar slid 0.8 percent to $1.0388, coming under pressure after a survey of factory managers showed that China's factory activity remained sluggish. An initial survey of manufacturing activity only ticked up in September from a nine-month low hit in August.
The Aussie dollar is sensitive to Chinese data as China is Australia's single largest export market.
Earlier, the New Zealand dollar gained a boost from data showing New Zealand grew at a healthy 0.6 percent in the second quarter, double the expected pace.
The kiwi hit an intraday high of $0.8303 after the data, but later pared its gains and was last down 0.3 percent at $0.8237 .
The euro fell 0.5 percent to $1.2987, pulling away from a four-month peak near $1.3173 reached on Monday.
Investors are waiting to see if Spain will seek a bailout and activate the European Central Bank's bond-buying programme, and a near-term focal point is an auction of Spanish bonds coming up later on Thursday.