* Pound down heavily in yo-yo session
* Dollar, yen recover on investor nerves
* Swedish briefly hurt by inflation data
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Writes through after UK attorney general comments)
By Tommy Wilkes
LONDON, March 12 (Reuters) - The dollar recovered from earlier losses on Tuesday after legal advice from Britain’s top lawyer dented hopes for a Brexit breakthrough and left investors nervous about buying into riskier currencies.
The developments reversed markets’ earlier, buoyant mood spurred by news that British Prime Minister Theresa May had secured legally binding assurances from the EU hours ahead of a parliamentary vote on her Brexit withdrawal deal.
But British Attorney General Geoffrey Cox said his legal advice had not changed: Britain could not unilaterally withdraw from the so-called Irish border backstop - a key demand from eurosceptic lawmakers whose support is crucial if May is to get her deal passed by parliament later on Tuesday.
Equity markets too reversed gains and sterling skidded into the red, although the mood in emerging markets remained positive. U.S. bond yields also rose as the Brexit mood shifted.
“The pound is slipping back as markets remain rightly cautious on the prospect of the new, improved deal making it through parliament, but earlier hopes that a hard Brexit can be averted plus broader gains in EM stocks so far this week lifted the risk-taking mood in the markets overall,” Scotiabank analysts said in a note to clients.
The dollar index recovered to 97.252 after earlier dropping 0.3 percent against a basket of currencies to 96.838.
The Japanese yen, popular when investors turn nervous, erased earlier losses to trade unchanged at 111.27 yen .
The euro was steady at $1.1253.
Renewed hopes for a U.S.-China trade deal and firm U.S. retail sales data on Monday supported emerging market currencies.
Meanwhile U.S. consumer prices rose for the first time in four months in February, although the pace of the increase was modest, resulting in the smallest annual gain in nearly 2-1/2 years.
The Swedish crown fell after February inflation came in slightly below expectations, settling at 10.5850 crowns per euro, down 0.4 percent.
The Norwegian crown strengthened slightly after a positive central bank activity survey, touching 9.7270 crowns per euro.
It had firmed 0.8 percent against the single currency on Monday after strong inflation data fanned expectations of an interest rate rise.
ING analysts said that should the Norwegian central bank raise rates twice in 2019, as it expects, the crown could strengthen to 9.65 over the following month and then towards 9.5.
But it was sterling that was the standout mover.
After big gains earlier in the day, the pound was down 0.8 percent at $1.3050 by 1205 GMT, having hit a high of $1.3290 overnight. Against the euro too, sterling tumbled, losing more than 1 percent to 86.53 pence per euro.
Britain’s scheduled departure from the EU is March 29 but while fears of a no-deal Brexit have receded, investors still do not know how and when Britain will exit the trading bloc.
Reporting by Tommy Wilkes; Editing by Susan Fenton