* Dollar index and dollar/Swiss franc hit 4-month lows
* Euro touches seven-week high, Aussie, sterling climb
* Traders cite FT opinion piece on U.S. debt rating
* Dollar falls amid broad rise in risk appetite
By Masayuki Kitano
TOKYO, May 13 (Reuters) - The dollar hit a four-month low against a basket of currencies and a seven-week trough versus the euro on Wednesday, facing renewed selling amid a recovery in risk appetite that has curbed safe-haven buying of dollars.
Traders said the dollar also came under pressure due to an article in the Financial Times that touched on the risk of the United States losing its triple-A credit rating and refocused attention on rising U.S. debt issuance.
While the content of the FT opinion piece was unsurprising it added to pressure on the dollar, which was already looking vulnerable on technical charts, traders said.
"I think the market overall wanted to test the (dollar's) downside and the FT story linked well with that trend," said a trader for a Japanese trust bank.
The recent recovery in risk appetite and falls in dollar funding costs point to a decline in market players' demand for dollars, leaving the U.S. currency vulnerable, said Takahide Nagasaki, chief foreign exchange strategist for Daiwa Securities SMBC.
"Concerns related to dollar funding have receded somewhat, and the focus turned towards topics that are negative for the United States such as the fiscal deficit," Nagasaki said.
The dollar index, which measures its performance against a basket of six currencies, hit a four-month low of 81.871. After trimming some losses, it was down 0.2 percent on the day at 82.140.
Last week, the dollar index breached support at the 200-day moving average while the euro broke above a similar moving average against the dollar.
In addition, the dollar breached key support against the yen earlier this week, when it fell below the top of the cloud on daily Ichimoku charts.
The euro hit a seven-week high of $1.3722 on trading platform EBS, but after shedding some gains it was up 0.2 percent from late U.S. trading on Tuesday at $1.3674.
CONFIDENCE BUILDS
Reflecting a gradual return in confidence in money markets, the three-month dollar London interbank offered rate (Libor) marked a record low of 0.906 percent on Tuesday.
Sterling and the Australian dollar also renewed their push higher against both the greenback and the yen. The dollar hit a four-month low of 1.0977 Swiss francs on EBS and came under early selling pressure against the yen after Japan's opposition finance spokesman said in comments to the BBC that Japan should avoid buying U.S. government bonds denominated in dollars because of currency risk.
Masaharu Nakagawa, chief finance spokesman of the Democratic Party, later told Reuters the remarks represented his own view, not that of his party. He said he did not mean Japan should not buy dollar-denominated U.S. government bonds but should seek an option of getting the U.S. to issue bonds in yen.
Japan's current account surplus fell a less-than-expected 48.8 percent in March from a year earlier, data showed, adding to the early pressure on the dollar.
But it later turned positive, gaining 0.1 percent to 96.57 yen as players covered short-dollar positions.
Technically, market players said the dollar may be forming a head and shoulders chart pattern against the yen and looked vulnerable, although it could draw some support from its 90-day moving average around 95.45 yen.
Talk about the potential for fund repatriation flows from Japanese investors related to redemptions and coupon payments on U.S. Treasuries this week also helped push the dollar lower against the yen, traders said.
The U.S. Treasury Department is due to make $21 billion in coupon payments on Friday as part of flows tied to its quarterly refunding moves. Another $52 billion of coupon securities are due to mature, for a total cash outflow of $73 billion.
The market reaction to the opinion piece in the FT suggested some investors were eyeing the possibility of a further dollar slide, but whether it would extend its slide remained unclear, said Tokichi Ito, deputy general manager for the forex team at Trust & Custody Services Bank.
"It made me think that some people may be worried about the potential risks of a sharp fall in the dollar," Ito said. (Additional reporting by Satomi Noguchi and Charlotte Cooper; Editing by Michael Watson)