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SYDNEY, Sep 18 (Reuters) The yen struggled to hold early gains on Monday even though some in the Group of Seven rich countries backed a stronger Japanese currency to reflect the country's economic recovery.

A statement issued after the weekend G7 meeting in Singapore did not mention the yen specifically, but European Central Bank President Jean-Claude Trichet later told reporters that G7 countries agreed the yen would reflect Japan's economic recovery.

The yen initially popped higher but soon faded, in part because the U.S. dollar gained on relief the G7 had not mentioned any desire to see it lower.

''The Europeans were trying to talk the yen higher and that worked briefly,'' said John Kyriakopoulos, currency strategist at National Australia Bank.

''But it was also clear that the G7 didn't want to give the impression that they wanted to see a much weaker dollar, and that's limited the fallout,'' he added. ''All in all, this doesn't look like a catalyst for major change.'' By 2245 GMT, the euro was at 148.90/95, up from early lows at 148.28 and 148.86 yen in late U.S. trade on Friday.

The dollar initially dipped against the yen but quickly bounced to 117.83 yen, putting it up on Friday's 117.53 close in New York.

The euro slipped to $1.2640/43, from $1.2660.

''The impact has been somewhat limited in part because Japan is on holiday, and partly because anyone who has gone long of the yen in recent months has lost money on it,'' said Robert Rennie, chief currency strategist at Westpac.

While the yen has been broadly range-bound on the dollar, it has slid against a range of other currencies so that in trade weighted terms it was around two-decade lows.

Yet, Rennie did think it notable that the Europeans had singled out the yen and the Japanese had not rejected their calls outright.

''We noted that the exit from the zero interest rate policy and that its recovery is now broadly based -- we agree that the yen will reflect these developments,'' said ECB President Claude Trichet said over the weekend.

The Bank of Japan, on July 14, showed confidence in the economy by raising interest rates from zero for the first time since 2001.

German Finance Minister Peer Steinbrueck used similar language, suggesting a coordinated message: ''The (Japanese) exchange rate should reflect these two developments.'' Even Japanese Finance Minister Sadakazu Tanigaki said the yen's recent drop to record lows against the euro had been a bit ''wild''.

''So we have a European desire to see a firmer yen and a Japanese willingness to listen,'' said Westpac's Rennie. ''It could take a while, but this may be the start of a turnaround in the yen's bear trend.'' The G7 also urged China to let its currency rise faster to help ease imbalances in trade, but analysts said this was in line with expectations.

China is pivotal because, without a sharp rise in the yuan, its Asian neighbours will be reluctant to let their own currencies appreciate for fear of losing competitiveness.

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