* Yen retains gains as risky trades unwound
* Bernanke"s testimony in focus after discount rate rise
By Rika Otsuka
TOKYO, Feb 24 (Reuters) - The yen retained hefty gains onWednesday, aided by safe-haven inflows after a slide in U.S.consumer confidence to a 10-month low stoked doubts about thepace of a global economic recovery.
The data pushed stocks and commodities .CRB lower, keepinghigher-yielding currencies such as the Australian AUD=D4 andNew Zealand dollars NZD=D4 under pressure. The rush to safetybenefitted U.S. Treasuries, with 10-year yields down a steep 10basis points the previous day.
"Risk aversion moves are providing support for the yen andthe dollar," said Tsutomu Soma, senior manager of the foreignsecurities department at Okasan Securities.
"There are few options but Treasuries for investors to buy asdata has shown the U.S. economy is not as strong as previouslythought," he said.
The fall in U.S. yields kept the dollar subdued against theyen JPY=, at 90.20 yen, having shed nearly 1 percent onTuesday. The yen gains when risk aversion rises as investorsunwind trades financed with the low-yielding Japanese currency.
But the dollar held onto sizable gains against other majorcurrencies with the dollar index .DXY =USD at 80.75, not farfrom its eight-month peak of 81.34 hit last week.
The euro EUR= pared some losses made the previous day butremained under pressure after the German Ifo index of businesssentiment dipped unexpectedly, while French household spendingand Italian consumer confidence turned lower. [ID:nLDE61M0LN][ID:nBAT005149]
It was further hurt by a downgrade of Greece"s four largestbanks by Fitch, bringing back the country"s woes back to theforefront. [ID:nLDE61M27R]
The euro edged up 0.3 percent to $1.3543, having lost nearly0.7 percent on Tuesday.
Traders said there could be a test of support around $1.3480,which is a 61.8 percent retracement of its move up from $1.2457to $1.5145 last year on Fibonacci charts.
The euro inched up 0.3 percent to 122.18 yen EURJPY=R,lifted by speculation that hefty buying linked to launches of newJapanese mutual funds would boost higher-yielding currencies andassets in emerging countries. Still the gains were not enough tomake up for its 1.7 percent dive against the yen on Tuesday.
"With the action taking on a more impulsive bias and thedaily patterns forming bullish reversals, the short term riskspoint to additional U.S. dollar strength," JPMorgan said in adaily note.
"We continue to see risk for the European currencies toextend their recent trends while holding current short positionsin euro and the pound."
Sterling GBP=D4 was up 0.2 percent at $1.5458, having lostover 0.4 percent on Tuesday after Bank of England policy makerssaid further asset purchases under its quantitative easingprogramme were possible.
The focus now shifts to Federal Reserve Chairman BenBernanke, who testifies before Congress on Wednesday andThursday. Traders say demand for beaten down risk assets andcurrencies could recover if Bernanke is upbeat about growth.
Investors will also be looking for any comments on the Fed"sdecision late last week to raise its discount rate -- the ratecharged to banks for emergency loans.
"Bernanke is likely to reaffirm the Fed will carry out itsexit strategy in a straightforward manner," said MasafumiYamamoto, chief FX strategist Japan for Barclays Capital, addingthat steps in this direction would lead to tightening liquidityfor the dollar and be dollar supportive.
St. Louis Fed President James Bullard on Tuesday said that,if the economy performs as expected, rates were probably on holdinto 2011 and that moves to take back some quantitative easingwere the natural path. [ID:nNAT007288]
The market showed muted reaction to the comments from Bullardas investors awaited Bernanke"s testimony, traders said. (Additional reporting by Anirban Nag in Sydney; Editing by ChrisGallagher)
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