* Dollar rises from 14-month lows
* Yen slides on yield spreads; hits 3-week low vs dollar
* Euro struggles at $1.50
* U.S. consumer sentiment report adds to safe-haven demand (Recasts, updates prices, adds detail)
By Nick Olivari
NEW YORK, Oct 16 (Reuters) - The U.S. dollar rose on Friday as risk tolerance dropped on data showing U.S. consumer sentiment eased in October and prompted safe-haven buying.
U.S. consumer sentiment fell unexpectedly this month on persistent worries that the "dismal" state of personal finances would not recover quickly from the worst recession in decades, a report showed on Friday.
The report added to investor pessimism about the global economy and financial markets. Earlier in the day, Bank of America earnings fell short of expectations, sparking some safe-haven buying against currencies that had touched multimonth highs against the greenback.
The dollar's broad recovery, though modest, was enough to take it further away from the psychologically key $1.50 level against the euro and further above the 90.00 yen level.
"It's not a particularly good report as we saw a big drop in the outlook," said Shaun Osborne, chief currency strategist at TD Securities in Toronto of the consumer sentiment data. "It's a case of poor data hurting equities but supporting the dollar in a risk-off and risk-on mentality."
The euro was last down 0.4 percent at $1.4884. The dollar rose 0.2 percent to 90.76 yen.
The dollar has traded inversely to stocks and financial market sentiment recently as the huge supply of dollars around the world and expectations of prolonged low U.S. interest rates has fueled demand for other currencies and assets.
Bank of America Corp posted a third-quarter loss of $1 billion, its second loss in less than a year and disappointing markets which this week had had more upbeat earnings results from other large U.S. banks and companies.
"The (FX) market is going to be focused on Bank of America and see if the Dow (Jones industrial average) closes down," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. "The dollar is at a precarious level and watching the $1.50 (euro/dollar) bellwether level."
VOLATILITY RULES
Yet trading was volatile throughout the session even as the overall trend remained intact. The dollar hit 14-month lows on an index basis and against the euro on Thursday, and looked like repeating the pattern on Friday. It touched a fresh 14-month low against the Australian dollar.
The Bank of America results, however, prompted traders to rethink positions ahead of the weekend.
Then the dollar gave up most of its gains against the yen and headed to within 10 pips of the session low after Dallas Federal Reserve President Richard Fisher said short-term changes in the dollar should not obscure its role as the world's safe haven during the crisis last year although its long-term performance depends on good policy.
"No policy-maker is going to argue for a weak dollar. A lot of it has to do with trade adjustment ... How quickly people forget we were the refuge for a long period," Fisher told a conference hosted at Southern Methodist University in Dallas.
"The question is the long-term trend. The answer, frankly, is let's get it right. Let's pick up our economy, pull up our socks and get on with it," he said.
YEN WEAKNESS WIDELY SPREAD
Sentiment towards the U.S. currency remains broadly negative, and it is not far from 2009 lows against the euro and higher-yielding currencies such as the Australian and New Zealand dollars.
Analysts said the dollar's rise on Friday did not reflect any change to this broad scenario but said investors were wary that currencies such as the euro and the Australian dollar may have limited scope for further gains. The euro, in particular, faced stiff resistance before the key $1.50 level.
The yen bore the brunt of the dollar's recovery on Friday, and also slid against other currencies as Japanese investors sought out higher returns from foreign fixed income markets. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by James Dalgleish)