FOREX-Yen boosted as sliding shares dampen risk appetite

* Sliding shares support yen against dollar

* Dollar index on track for biggest weekly fall in 9 months (Rewrites throughout)

By Shinichi Saoshiro

TOKYO, April 11 (Reuters) - The yen was on track to post its biggest weekly gain against the dollar in four weeks on Friday as a Wall Street share selloff and Asia's diminishing risk appetite boosted the safe-haven yen.

The dollar traded little changed at 101.70 yen, not far from this week's trough of 101.32 touched earlier in the session. The yen has risen 1.66 percent against the dollar this week, its largest weekly gain since mid-March, if sustained.

The dollar has come hurtling down from the 10-week peak of 104.13 scaled late last week when risk appetite was significantly stronger.

But last Friday's lower-than-expected U.S. non-farm payrolls data, a show of confidence by the Bank of Japan on Tuesday that no additional stimulus was needed in the short term, and growing perceptions that a rate hike by the Federal Reserve is still a long way off has dissolved support for the dollar.

Market participants said renewed concerns over Ukraine were also a factor to watch, with the yen standing to gain from its safe-haven status.

"The 'risk off' trend is gaining momentum, and we cannot overlook the impact of the Ukrainian situation. Many wrongly thought this would be a temporary factor and it is negating positive news about the U.S. economy that would otherwise help risk appetite," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

Tensions over the Ukraine crisis rose another notch when Russian President Vladimir Putin on Thursday threatened to cut off natural gas supplies to Ukraine if it did not pay its bills.

"That the euro has risen recently without much resistance shows that dollar weakness is leading current currency trends. Under normal circumstances the market would not be ignoring hints from the ECB that the euro is too high," Murata at Brown Brothers Harriman said.

Investors all but shrugged off dovish comments from European Central Bank President Mario Draghi who once again said that the bank was ready to start quantitative easing to combat low inflation risks, but noted that inflation expectations were anchored at the bank's target for now.

The euro traded at $1.3896, hovering near a three-weak high of $1.3900 hit on Thursday.

Traders said fervent demand for Greece's first bond sale just two years after it defaulted was positive for the common currency as well.

The dollar index last stood at 79.396, down about 1.28 percent so far this week. If sustained, this will be its biggest weekly fall in nine months.

The index is now back at levels seen before March 19 when Fed Chair Janet Yellen hinted at the possibility of an interest rate hike as soon as early next year.

But minutes from the Fed's March meeting released mid-week appeared to have driven home the message that the U.S. central bank is nowhere near tightening, even as it has begun to unwind its bond-buying stimulus.

Softness in the greenback coincided with further declines in U.S. Treasury yields. The benchmark 10-year yield has fallen to its lowest in nearly four weeks at 2.63 percent, which in turn makes the dollar less attractive.

"The FOMC is working so hard to reassure markets that it will not tighten too much, too soon, that it risks unsettling the carefully-constructed forward guidance put in place last year to prepare markets for eventual policy normalisation," said Societe Generale (Paris: FR0000130809 - news) strategist Kit Juckes.

"This is breathing new, temporary life into carry trades, and undermining the U.S. dollar," London-based Juckes wrote in a note to clients.

The Australian dollar lost some of its shine from the selloff in equities, although it was still on track to show an increase of 1 percent for the week against the greenback, bringing this year's gains to more than 5 percent.

One of the best performers this week, the Aussie traded at $0.9280 after rallying to five-month highs above 94 U.S. cents on Thursday.

Upbeat local jobs data on Thursday meant the Reserve Bank of Australia will be able to honour its pledge of maintaining interest rates steady for some time.

Data out of China was mostly in line with expectations, and reaction was muted.

Japanese shares tumbled to six-month lows on Friday, with sentiment hurt after the Nasdaq suffered its biggest drop in two-and-a-half years on Thursday. (Additional reporting by Ian Chua in Sydney; Editing by Shri Navaratnam and Eric Meijer)