Dollar nurses losses as investors limit risk-taking

TOKYO, Mar 13 (Reuters) The dollar was steady against the yen on Tuesday after slipping back towards a three-month low the previous session as cautious investors trimmed some exposure to high-yielding currencies ahead of U.S. retail sales figures.

Concerns about rising defaults in the U.S. subprime mortgage sector hurting the broader economy spurred selling of the dollar against the yen, erasing some gains after last week's upbeat U.S.

jobs data.

The latest move by investors to cut back on carry trades, in which low-yielding currencies like the yen are used as a cheap source of funds to buy higher-yielding currencies, drove down the pound and New Zealand dollar against the yen on Monday.

The dollar recovered to 117.65 yen after falling as low as 117.22 yen in the previous session and back towards a three-month low of 115.16 yen hit last week.

''Moves related to risk aversion are not yet over,'' said Kengo Suzuki, currency strategist at Shinko Securities. ''The dollar's upside looks limited for a while.'' The yen had surged in late February and earlier this month as a sharp sell-off in global equity markets prompted investors to slash their risky carry trades.

But the Japanese currency quickly gave back those gains as stock markets rebounded, easing worries about a prolonged bout of investors avoiding riskier assets.

Sterling recovered some of its losses against the yen to 227.23 yen as traders took profits on the drop to as low as 225.87 yen on Monday.

The euro was slightly down against the yen at 155.15 yen after falling to 154.22 yen, staying above a three-month low at 150.75 yen hit last week.

The single currency stayed firm against the dollar to trade at .3190 near an overnight high around .3200.

While investors remain focused on the global tolerance for risk, market players are eyeing the outcome of the slew of U.S.

economic data due out this week.

Traders will watch Tuesday's U.S. retail sales report and consumer price data later in the week, with any weaker-than-expected figures seen stoking expectations for possible Federal Reserve interest rate cuts later in the year.

Any heightened expectation for the Fed to trim rates from the current 5.25 percent would likely spark dollar selling and revive risk aversion, prompting a further unwinding of yen short positions against higher-yielding currencies.

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