* Dollar dips vs euro, Wall St rally pares safety buying
* Japan machinery orders fall less than expected
* Yen shows limited reaction to machinery orders
By Masayuki Kitano
TOKYO, March 11 (Reuters) - The dollar dipped against the euro on Wednesday after U.S. shares rallied the previous day on news that Citigroup was profitable in the first two months of 2009, tempering safe-haven buying of the dollar.
U.S. stocks rose sharply on Tuesday with the Standard & Poor's 500 Index climbing 6.37 percent, pointing to some improvement in risk appetite among investors.
A rise in regional shares on Wednesday underscored such sentiment, with Japan's benchmark Nikkei average rising more than 3 percent after booking a 26-year closing low on Tuesday.
"When risk appetite falls the dollar attracts buying and when such tolerance increases the dollar tends to be sold," said Yuji Saito, head of the foreign exchange sales department at Societe Generale in Tokyo.
The euro rose 0.4 percent to $1.2725, pulling away from a 3-½ month low of $1.2457 hit on trading platform EBS last week.
The dollar was steady at 98.70 yen, having come off a a four-month high of 99.69 yen hit last week.
There was little immediate reaction to data showing that Japan's core private-sector machinery orders, a key gauge of corporate capital spending, fell 3.2 percent in January from the previous month.
That was slightly better than a median market forecast for a 4.5 percent fall.
Despite the news from Citigroup and the rally on Wall Street on Tuesday, there was still uncertainty about the outlook for equities and risk appetite.
Many market players probably doubt that this has resulted in a full-fledged easing of credit jitters, said a trader for Japanese foreign exchange broker. The rise in U.S. equities, which may have involved some short-covering, could prove temporary, he said.
U.S. shares received an added boost on Tuesday after a key lawmaker expressed hope there would soon be a reinstatement of a rule that makes it harder to bet that a share price will fall.
Rep. Barney Frank, chairman of the House Financial Services Committee, said he was hopeful the Securities and Exchange Commission would reimpose the "uptick" rule in about a month. (Editing by Michael Watson)