FOREX-Yen falls broadly as US CPI data lifts risk demand

(Recasts, updates prices)

* Yen falls broadly as U.S. CPI data boost risk demand

* CPI rises at an unexpectedly slower pace in April

* CPI does not change views Fed on pause

By Lucia Mutikani

NEW YORK, May 14 (Reuters) - The yen fell broadly on Wednesday as a benign U.S. consumer inflation report for April raised investors' appetite for risk and was seen giving the Federal Reserve flexibility to deal with an economic downturn.

The unexpectedly slower increase in the consumer price index (CPI) briefly caused traders to sell the dollar, but analysts said it did not alter market views the Fed's interest-rate-cutting campaign was almost over.

"The market looked at it as a positive for risky assets, namely that it takes a little bit of stress off the inflation outlook and gives the Federal Reserve more flexibility in terms of the economic outlook," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

The dollar jumped to a session high of 105.44 yen JPY=, with U.S. stocks surging as worries eased about inflation. It was last trading at 105.22 yen, up 0.4 percent on the day.

The euro gained 0.4 percent to 162.69 yen EURJPY=, while sterling rose 0.5 percent to 204.67 yen GBPJPY=. Against the yen, the Canadian dollar soared 0.6 percent to 104.89 yen CADJPY=.

RISK APPETITE BACK

"The more benign CPI also led to bonds getting bought back, bringing yields down. That's what drove the dollar/yen rate and we're looking at stocks pricing higher, bringing back risk appetite," said Dolan.

Consumer prices rose by 0.2 percent in April, less than the 0.3 percent gain Wall Street analysts expected. CPI rose 0.3 percent in March.

The dollar erased earlier gains versus the euro, in what analysts said was a knee-jerk reaction to the CPI report. The euro was last trading at $1.5460, flat on the day, but off earlier troughs at $1.5397.

It briefly rose to a session high of $1.5486 EUR=.

"The direct nominal rate implications are dollar negative, and that is the way the market has traded off this number," said Alan Raskin, chief international strategist at RBS Greenwich Capital in Greenwich, Connecticut.