* Dollar strengthens after China Feb exports slump
* Euro, sterling, Australian dollar fall
* Yen benefits from fall in other majors
* Dollar/yen seen trapped between seasonal flows
By Masayuki Kitano
TOKYO, March 11 (Reuters) - The dollar strengthened against other majors on Wednesday, reversing early losses, after a slump in China's exports in February knocked down the Australian dollar and other major currencies.
The dollar began the Asian session on the back foot as safe-haven dollar buying lost steam following a rally in U.S. shares on Tuesday on news that Citigroup was profitable in the first two months of 2009.
But investor sentiment remains jittery, with worries about the world economy and banking sector never far from the surface, and the dollar spun around after data showed China's trade surplus shrank to $4.84 billion in February.
This was much lower than forecasts for a $27.3 billion surplus and exports slid 25.7 percent on a year ago.
The Australian dollar fell almost 1 percent at one stage before recovering a little to stand 0.5 percent down on the day at $0.6423. It also fell sharply against the yen.
"Australia has close links with China, and I can understand how the Australian dollar would be sold due to concerns about demand for raw materials," says Takahide Nagasaki, chief foreign exchange strategist for Daiwa Securities SMBC.
The euro shed 0.2 percent on the day to $1.2661, falling from about $1.2725 before China's data. It had touched a two-week high of $1.2823 on trading platform EBS on Tuesday.
Sterling also fell, dropping 0.3 percent to $1.3699, and edged towards a one-month low against the euro.
The dollar climbed 0.3 percent against a basket of currencies to 88.769. It struck a three-year peak on the index last week, at 89.624.
YEN STRENGTHENS TOO
The Australian dollar's fall helped the yen rise, pushing it up against the New Zealand dollar, then the euro and the pound, which a trader said were also hit by investors repatriating funds from Europe.
"After the Chinese data cross/yen collapsed. Sterling/yen stops were triggered and that was a trigger of the broader yen purchases," said Toru Umemoto, chief FX strategist Japan at Barclays Capital.
The crosses recovered from the steepest of their falls, with the Australian and New Zealand dollars holding above recent upward trend lines against the yen, but were still between 0.5 percent and 1 percent weaker on the day.
The dollar also failed to hold gains versus the yen, slipping further from a recent four-month peak close to 100 yen. It fell 0.3 percent to 98.35 yen.
There was little reaction to data showing Japan's core private-sector machinery orders, a key gauge of corporate capital spending, fell 3.2 percent in January from the previous month, slightly better than forecasts for a 4.5 percent fall.
A trader for a major Japanese bank said there seemed to be repatriation flows from both Japanese and overseas players and such flows were cancelling each other out.
"Overseas players tend to be dollar buyers, while yen buying tends to be prevalent among Japanese," the trader said. "But they are not appearing in the kind of size that can tilt the supply and demand balance very far," he added.
Such two-way flows could keep the dollar hemmed in against the yen until the end of March, said Yuji Matsuura, joint general manager for Aozora Bank's forex and derivatives trading group.
He also saw the euro trading between $1.2500 and $1.3000 for a while.
"Both the euro and dollar/yen may be in the type of lull that comes before a sharp move," Matsuura said, adding that the euro could eventually come under pressure if concerns about eastern European countries flare up again. (Additional reporting by Charlotte Cooper and Yoko Matsudaira)