* Dollar dips vs euro, Wall St rally pares safety buying
* Japan machinery orders fall less than expected
* Yen shows limited reaction to machinery orders
* Dollar/yen seen trapped between seasonal flows
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 jumped on Tuesday with the Standard & Poor's 500 Index climbing more than 6 percent, pointing to some improvement in risk appetite among investors.
A rise in Asian shares on Wednesday underscored that mood, with Japan's benchmark Nikkei average rising more than 4 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 foreign exchange sales at Societe Generale in Tokyo.
The euro rose 0.2 percent to $1.2704, pulling away from a 3-½ month low of $1.2457 hit on trading platform EBS last week.
A trader for a Japanese financial institution cited an accumulation of euro-selling positions as a supportive factor for the single European currency, saying market players were reluctant to increase such bets against the euro at this stage.
The dollar dipped 0.3 percent to 98.40 yen, having come off a a four-month high of 99.69 yen last week.
A trader for a major Japanese bank said there seemed to be repatriation flows from both Japanese and overseas players, adding that 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.
STUCK IN RANGE
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. The euro is likely to trade between $1.2500 and $1.3000 for a while, he added.
"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.
There was little 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, 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 led to a full-fledged easing of credit jitters, said a trader for a Japanese foreign exchange broker. The rise in U.S. equities, which may have involved some short-covering, could prove temporary, said a trader at a Japanese foreign exchange broker.
U.S. shares received an added boost on Tuesday after Rep. Barney Frank, chairman of the House Financial Services Committee, expressed hope there would soon be a reinstatement of the "uptick" rule that makes it harder to bet that a share price will fall. (Additional reporting by Yoko Matsudaira; Editing by Hugh Lawson)