FOREX-Dollar, yen fall as stocks gain boosts risk appetite

* Dollar mostly lower but rallies vs yen

* Stock markets turn higher in choppy trade

* RBA rate cut keeps focus on lower global rates (Updates prices, adds quotes)

By Gertrude Chavez-Dreyfuss

NEW YORK, Dec 2 (Reuters) - The dollar slid against the euro and a basket of currencies on Tuesday as a stock market rebound encouraged investors to emerge from the shelter of U.S. assets.

U.S. .DJI and European stocks .FTEU3 rose, which weighed on the yen, although investors remained cautious as they braced for dramatic interest rate cuts later in the week.

The U.S. and Japanese currencies have found support in recent months, with investors reducing exposure to riskier assets financed by cheap yen and dollar loans. U.S. portfolio investors have also moved funds back to their domestic market, which has also boosted the greenback since August.

An unexpectedly bold 100 basis-point rate cut from the Reserve Bank of Australia had earlier kept the Australian dollar under pressure, although the currency has since recovered with the rise in stocks.

"The pro-active approach by central banks to monetary and fiscal stimulus has helped enhance risk appetite," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York.

"Even though rate cuts are supposedly negative for currencies in general, in this environment, FX investors tend to reward currencies whose central banks are aggressive in stimulating their economies. So we've seen a reversal of gains in the dollar and yen with the bounce in equities."

In midday New York trading, the euro rose 0.5 percent against the dollar to $1.2692 EUR= and gained 1.0 percent versus the yen to 118.84 EURJPY=.

The ICE Futures' dollar index .DXY, a gauge of the greenback's value against six other major currencies, weakened 0.6 percent to 86.505.

The dollar JPY= rose 0.4 percent against the yen to 93.62. It fell as low as 92.64 yen earlier, the lowest since Oct. 28, according to Reuters data.

GLOBAL RATES IN FOCUS

Risk appetite also improved, analysts said, after the Bank of Japan held an emergency policy meeting on Tuesday and announced it will accept a wider range of corporate debt as collateral in money market operations to help unfreeze credit markets. For details, see [ID:nTKF003180].

The BoJ held interest rates steady at 0.3 percent as expected at the meeting.