* Euro, dollar gain as Putin pulls back troops on exercise
* Russian ruble rebounds, retraces Monday’s decline
* Aussie struggles in face of new central bank warning
* Non-farm payrolls, ECB meeting loom later in week
By Richard Leong and Patrick Graham
NEW YORK/LONDON, March 4 (Reuters) - The yen fell against the dollar and the euro while the ruble rebounded on Tuesday after signs that Russia may be seeking to avoid further escalation of its military involvement in Ukraine pared bids for safe-haven currencies.
The euro had fallen sharply against the yen, which investors favor in times of geopolitical tension, after Western powers threatened over the weekend to take steps to isolate Russia economically, raising a host of risks for Western Europe and the global economy.
But a selloff in the ruble and Russian assets halted on Tuesday, and investors pulled money out of the perceived safety of the yen, with sentiment boosted by Russian President Vladimir Putin’s ordering some troops in Russia back to base.
Putin later told a news conference he saw no need to use military force in Ukraine’s Crimea region for now.
The surprise for some traders has been the extent to which major currencies have taken in stride the West’s biggest confrontation with Russia since the Cold War, although many analysts had reckoned the United States and Europe were unlikely to opt for a military response.
“The safe-haven bids have started to fade,” said Sebastien Galy, currency strategist at Societe Generale in New York. “The risk of contagion has dropped significantly.”
The euro and the dollar rose against the yen to 140.310 and 102.00 , respectively. The euro rose 0.16 percent to $1.3757.
On Monday, the single currency fell 0.5 percent and 0.8 percent versus the greenback and yen, respectively.
The Swiss franc, also seen as a safe haven, retreated from its strongest in a year against the euro, trading at 1.2173 francs compared to the Swiss National Bank’s cap of 1.20.
“Given three days worth of bad headlines, I think the market was just willing to take any sort of stability it can get,” said Geoffrey Yu, a strategist with UBS in London.
“Given the amount of reduction in risk we saw yesterday people were just looking to get back in.”
Putin’s stand of no further military action on Ukraine stoked a bounce in the ruble. The dollar declined 0.9 percent against the Russian currency at 36.16 rubles, retracing much of the 1.3 percent rise on Monday.
Traders were also looking ahead to major economic events later this week.
Opinion remains deeply divided as to the European Central Bank’s likely course of action at a policy meeting on Thursday. A higher-than-expected inflation number last Friday prompted many to pare bets on outright easing of interest rates but that is not the only action the bank can take.
An ECB source told Reuters there would be unanimous agreement to end so-called sterilization of the bank’s bond purchases under the bank’s Securities Markets Programme.
“I think there is some degree of easing priced into markets,” UBS’s Yu said. “That’s not our position but we do think we may get some dovish talk from (ECB President Mario) Draghi. So it may be a case of the euro rising on the decision and falling on his comments an hour later.”
UBS is also among the many banks predicting a stronger dollar this year. That move has so far failed to materialize, largely thanks to a halt in the flow of improving U.S. data.
Most put that down to extremely harsh winter weather, however, and non-farm payrolls data on Friday could show a more bullish increase of 150,000 jobs in February.