FOREX-Dollar falls as Citi news dampens safe-haven appeal

* Euro rises to two-week high vs dollar

* Citigroup memo on earnings boosts risk tolerance

* Yen rises but doubts persist about Japan economy (Updates prices, adds comment)

By Nick Olivari

NEW YORK, March 10 (Reuters) - The dollar slid against most major currencies on Tuesday as comments by Citigroup's chief executive that the bank was profitable in the first two months of 2009 boosted stocks and prompted investors to pare back safe-haven bids on the greenback.

The improvement in risk appetite spurred a bounce in the euro, which rose to two-week highs versus the dollar. But analysts cautioned the euro's gains could be fleeting as the global macroeconomic environment and worries about banking systems worldwide remain supportive of the dollar as the world's reserve currency.

The yen rose and fell against the dollar over the session, with doubts about the Japanese currency's status as a safe haven keeping trading in tight ranges, traders said.

"We're seeing a general rebound in risk appetite given improving stock performance," said Omer Esiner, senior market analyst at Ruesch International in Washington.

"The Citigroup memo assuaged fears about the health of the banking sector, undermining the dollar's safe-haven appeal. But this could be all temporary and the market is just probably booking profits on the dollar's recent gains," he added.

In late afternoon New York trading, the euro rose 0.4 percent to $1.2665, after hitting a roughly two-week high at $1.2821 EUR=, according to Reuters data. The euro was also 0.7 percent firmer against sterling at 92.16 pence EURGBP= after earlier touching a five-and-a-half week high at 92.47 pence.

U.S. stocks .SPX .DJI gained sharply after the comments by Citigroup (C.N) Chief Executive Vikram Pandit fueled optimism. Pandit, in an internal memo seen by Reuters, said the company was profitable in the first two months of the year and confident about its capital strength. [ID:nLA390055].

BUY DOLLAR ON DIPS

Some analysts, however, were skeptical the Citigroup-inspired rally in equities and currencies such as the euro would last.

"The market is talking about the Citigroup news, but at the same time the U.S. government is readying a fourth contingency plan for Citigroup," said Adam Fazio, senior currency strategist at CIBC World Markets in New York.

"The government wouldn't be putting a fourth plan in place if it didn't think there was some chance that it would be needed. ... So I think we're going to get another round of bad news and I would be a buyer on dips here in the dollar."

The euro, meanwhile, gained despite remarks from European Central Bank Executive Board member Lorenzo Bini Smaghi, who was quoted as saying the bank was prepared to cut interest rates to zero if deflation threatens and the economic situation worsens [ID:nLA201827].