FOREX-Euro rally stalls again as ECB outcome in focus
* Markets wait to see if ECB will talk down currency
* Yen tests upside against euro, dollar
* Sterling subdued ahead of BOE meeting
TOKYO/SYDNEY, Feb 7 (Reuters) - The euro fell against the dollar and a resurgent yen on Thursday, while sterling wallowed at multi-month lows as cautious investors awaited outcomes of central bank policy meetings in Europe and Britain.
Both the European Central Bank and Bank of England are widely expected to keep interest rates unchanged later on Thursday, but any dovish hints could put both currencies under pressure.
Also overshadowing the meetings are incoming BOE Governor Mark Carney's testimony before the UK parliament as well as an Italian banking scandal, which is likely to be a distraction at the ECB's media conference.
"The overall trend for the euro hasn't changed, but it has paused," said Kimihiko Tomita, head of forex at State Street in Tokyo.
"The scandal stirs memories of past scandals, and there's the possibly that it, too, could become a bigger matter, so this is making some investors cautious," he said.
The euro moved away from a 34-month high of 127.71 yen hit on Wednesday, shedding 0.1 percent to 126.45 yen, but pared losses from an Asian session low of 126.04 yen.
Against the dollar, the euro was nearly flat at $1.3523 , holding above this week's trough of $1.3458 plumbed Tuesday but still shy of a 15-month peak of $1.3711 set on Feb. 1.
Sterling traded nearly flat at $1.5668, not far above a 4-1/2-month low of $1.5630 set Tuesday.
While markets appeared to be positioning for dovish comments from the ECB, some analysts suspect the bank will not be that bothered about the recent strength in the euro
Vassili Serebriakov, strategist at BNP Paribas, said in a client note that the majority on the Governing Council will probably reason that the euro's strength is a result of real improvement in the financial markets and economic outlook, thus not warranting immediate action.
This could temper demand for the euro, which has risen more than 2 percent against the greenback so far this year and over 10 percent on the yen.
The overnight pullback in the single currency helped the dollar index climb to a one-week high of 79.864 on Wednesday, though it fell to 79.728 as the greenback took a breather against the yen.
The dollar retreated 0.1 percent to 93.55 yen from a 33-month peak around 94.075 yen hit on Wednesday, though it moved off its Asian session low of 93.29 yen.
With the Bank of Japan committed to open-ended asset purchases from 2014 and aiming for a 2 percent inflation target, pressure on the yen is likely to continue, market participants said. U.S. speculative accounts were still actively buying the dollar on dips, with stop-loss orders said to be placed at 93.20 yen and just below 93 yen.
"Some market participants may think the U.S. dollar is a little bit fast, to reach for 94, 95, so that's why we should wait for a while, to wait for new material," said Masashi Murata, a currency strategist at Brown Brothers Harriman in Tokyo.
The Australian dollar briefly jumped a quarter of a cent to $1.0333 after a mixed jobs report, before pulling back to $1.0322, not far from a near three-month low of $1.0296 hit on Wednesday.
Australian employment rose by 10,400 in January while the jobless rate held steady at 5.4 pct, modestly beating market expectations. However, all the jobs growth was in part-time work with full-time jobs lower.