* Yen up 0.5 pct vs euro, dollar
* Greenback below 200-day MA vs yen
* MAS tightening weighs on dollar; Fed to stay put on QE2
By Natsuko Waki
TOKYO, April 14 (Reuters) - The dollar hit a fresh 16-month low against a basket of currencies on Thursday as expectations grew the Federal Reserve would keep its loose monetary policy, widening interest rate differentials in favour of higher-yielding currencies.
In flow-driven trading, the dollar briefly broke below its 200-day moving average near 83.43 yen after investors lightened sizeable long positions established after the U.S. currency's speedy ascent from its record low of 76.25 in March.
The tone for the dollar remained weak after Wednesday's U.S. retail sales data and the Fed's Beige Book report did nothing to change the view the central bank would keep its $600 billion asset buying programme until June.
In contrast, the European Central Bank is expected to follow up its April interest rate hike with more tightening later this year, a factor keeping the single currency near a 15-month peak against the dollar.
"It's driven by position adjustment as the move has been too fast. The dollar's quick rise of almost 10 yen has left sizeable longs," said Osamu Takashima, chief FX strategist at Citibank.
"The rise in U.S. yields has stopped and the focus is moving to when the Fed will actually raise interest rates after it ends its QE2 policy in June. But it can't raise rates straight after June. Until the market starts to seriously price in a U.S. rate hike, the euro will stay supported."
The dollar index , which measures its strength against major currencies, fell to 74.676, bringing its losses this year to around 5 percent.
The dollar fell as low as 83.20 yen on EBS, moving away from its 6-1/2 month high around 85.55 set last week.
Market players say Japanese exporters will soon resume their dollar sales which they had postponed after the March 11 earthquake as production recovers.
The area around 85.40/85.95 represents a 50 percent retracement of the decline from its May peak, the September highs and a critical downtrend-line from the 2007 cycle high.
The euro rose half a percent to $1.4508 , approaching its 15-month high of $1.4521. Sterling and the Australian dollar also rose against the U.S. currency.
"The fact that the U.S. recovery is continuing will not become a trigger point for Fed policy," said Masafumi Yamamoto, chief FX strategist at Barclays Capital.
"Unemployment, although improving, is still relatively high and the Fed is not going to bring forward the end of its loose monetary policy. The dollar is finding no fresh factors to rise on."
Mizuho Corporate Bank said that $1.4500 represented pivotal resistance, adding the Deutschmark never managed to hold above its equivalent to this level since exchange rates were floated.
The euro hit a session low of 120.18 yen before moving back to 121.28, still off its 11-month high around 123.30 set this week.
Singapore's stronger-than-expected growth data and the central bank's move to let its currency rise against the dollar in monetary tightening reflected strong inflationary pressures in booming emerging economies, a factor that could weigh on the U.S. currency. [ID:nSFK000031]
China's central bank also let the yuan climb to a fresh trading peak to fight imported inflation [ID:nL3E7FE0BH]. Hong Kong's Phoenix TV cited an unnamed source as saying China's annual inflation accelerated to 5.3-5.4 percent in March [ID:nB9E7EN026].
Goldman Sachs said its models suggested the dollar is now about 13 percent cheaper than its fair value on a trade-weighted basis. However, only four out of 32 currencies of U.S. trading partners weakened against the dollar this year, which Goldman said would offer comfort to policymakers. (Editing by Joseph Radford)