* Dollar falters as speculators trim bets
* Euro climbs vs dollar and sterling
* Yen erases earlier losses to rise vs dollar
By Satomi Noguchi
TOKYO, March 10 (Reuters) - The dollar fell against a basket of currencies on Tuesday, retracing much of the previous day's sharp gains as repatriation flows into the greenback slowed and speculators trimmed bets it will rise further.
The yen erased losses and rose versus the dollar, though doubts about its status as a safe port in the global economic storm ensured it kept an overall defensive tone, traders said.
The euro was one of the beneficiaries of the dollar's fall and climbed versus sterling, with analysts saying mounting costs of Britain's efforts to shore up its banking sector and economy meant the pound was attracting speculative selling.
"The dollar had become fragile after its recent strength, which was based solely on repatriation flows and not on any attraction for it," said Kengo Suzuki, a currency strategist for Shinko Securities in Tokyo.
"So as soon as the repatriation flows into the dollar slow it loses ground with no other reason to support it," Suzuki said.
The dollar index, a gauge for the geenback's performance against other six major currencies, fell 0.8 percent to 88.533, off last week's three-year high of 89.624.
The euro advanced 0.8 percent to $1.2710, rebounding above a three-month low of $1.2457 hit last week. The euro rose 0.6 percent against sterling to 91.98 pence.
The pound managed to recover from a six-week low against the dollar to rise 0.3 percent on the day to $1.3824.
But the pound's rebound was shaky after it shed 2 percent on Monday as bank sector worries intensified when Lloyds Banking Group said the British government was taking a stake in it of up to 77 percent.
YEN ON DEFENSIVE
The yen has fallen in the past month as Japan's economy grapples with diving exports and its worst recession of the postwar era. The current account balance swung to its largest deficit on record in January, adding to the selling pressure.
Market participants say foreign investors have been reducing long positions in the yen, with expectations fading that it can surpass a 13-year peak of 87.10 yen per dollar hit in January.
"Expectations that Japan will see more months of trade deficits and data showing Japanese investors have been net buyers of foreign assets are adding to views among overseas investors that the yen may not gain much," said Koji Fukaya, a senior currency strategist for Deutsche Securities in Tokyo.
"But their actions remain within a reduction of prior positions and have not yet gone so far as to create yen-shorts."
Recessions in many of Japan's export markets have dried up overseas demand for its goods, meaning exporters also have fewer dollars to sell in exchange for yen, traders say.
The dollar fell 0.3 percent to 98.60 yen as traders cited selling by European banks triggering stop-loss moves after a brief rise above 99 yen earlier.
It lost steam this week after rising to a four-month peak of 99.69 last week. Fukaya said its range had shifted to 95-100 yen, and there could be a jump above 100 yen as soon as this month.
The euro advanced 0.4 percent to 125.15 yen and the Australian dollar jumped 1 percent to 62.93 yen, while the New Zealand dollar rose 0.7 percent. (Additional reporting by Kaori Kaneko and Charlotte Cooper; Editing by Michael Watson)