FOREX-Dollar drops vs yen as oil, U.S. stocks turn lower

(Recasts, updates prices, adds comment)

* Oil, stocks fall in choppy trading

* Dollar rise on higher risk sentiment is fleeting-analyst

* Dollar/yen also pressured by central bank factors

By Gertrude Chavez-Dreyfuss

NEW YORK, Feb 18 (Reuters) - The dollar tumbled against the yen on Thursday in a choppy session, undermined by a renewed decline in risk appetite amid another setback in oil prices and U.S (Other OTC: UBGXF - news) . stocks.

The dollar index was still up on the day as oil and equities posted gains earlier in the session. But as both assets turned lower later in the afternoon, the dollar pared gains against the euro, Swiss franc, and sterling.

The U.S. currency's fate has been pared with oil and stocks in recent weeks. Weaker oil prices and turbulent financial markets suggest the Federal Reserve could hold off raising interest rates in 2016, contrary to what was telegraphed in December.

Daniel Katzive, head of FX strategy for North America at BNP (Paris: FR0000131104 - news) Paribas in New York believes that any rebound in the dollar as a result of an improvement in risk sentiment would not likely persist.

He added an improvement in risk appetite seen for the most part this week was due largely to "the collapse in market pricing for further Fed hikes and also reflects reduced pricing for Chinese yuan devaluation, as the dollar has retreated."

"For this reason, we do not expect the markets to rebuild Fed rate hike expectations, and front-end rates are likely to stay low."

In late trading, the dollar fell 0.8 percent against the yen to 113.18 yen. Analysts said central bank policies are also a factor in this currency pair.

Eric Theoret, currency strategist at Scotiabank in Toronto, pointed to Wednesday's dovish Fed minutes, which suggested a much slower rate hike pace, given shaky global economic developments. That should be a negative for the dollar.

He also cited local media comments underscoring "a moderation in official pressure for further Bank of Japan stimulus at the meeting on March 15th." This suggests that the yen may have found a bottom against the dollar.

Though the dollar index rose 0.1 percent to 96.908, it was much higher earlier. It was the same with the euro, which came off its lows versus the dollar to trade 0.3 percent weaker at $1.1096. (Additional reporting by Patrick Graham in London; Editing by Bernadette Baum and Andrew Hay)