* Dollar dips as equities recover from heavy losses
* RBA keeps rates steady, sparking buying in Aussie, euro
* BoC, ECB, BoE policy meetings in focus
(Adds quotes, updates prices, changes dateline, pvs Tokyo)
By Kirsten Donovan
LONDON, March 3 (Reuters) - The dollar weakened on Tuesday as equity markets recovered some of the previous day's hefty losses and as traders bought the euro and other higher-yielding currencies after the Reserve Bank of Australia unexpectedly left interest rates on hold.
But activity was subdued as investors took a wait-and-see stance, believing that increased worries about the financial system and fears about the deepening global recession would quickly curtail any move into riskier assets. The dollar index, a gauge of its strength against a basket of six other major currencies, hit a three-year high in overnight trade as investors sought shelter in the world's most liquid currency.
But it erased gains as the RBA kept rates unchanged at 3.25 percent on Tuesday, confounding hopes for a cut, saying stimulus already in the pipeline was helping the country avoid the depths of recession seen elsewhere.
"We've seen a bit of a surge in risk appetite over night with U.S. stock futures up, although the falls were horrendous yesterday," said Christian Lawrence, an FX strategist at RBC Capital Markets.
"(High-yielding currencies) are outperforming low-yielders across the board, although obviously the Aussie was in part boosted by the RBA decision."
By 0826 GMT, the dollar index was 0.66 percent lower at 88.443, after hitting a three-year high of 89.026 in Asian trading. The Australian dollar jumped 2.27 percent to $0.6436 and 2.46 percent to 62.98 yen.
The euro received a boost as speculators bought back the European single currency following a jump in the Australian dollar, and ahead of a policy meeting by the European Central Bank later this week.
The euro rose 0.7 percent from late U.S. trade to $1.2669, recovering losses suffered in the wake of European Union leaders' rejection of a mass bailout for Eastern Europe, which weighed on the single currency the previous day.
It also climbed 1.26 percent to 123.90 yen, after touching the day's low of 121.72 yen, having poked above 126.00 yen last week to a seven-week high.
LULL IN THE STORM?
The dollar was supported on Monday as steep losses on Wall Street and dire financial news including insurer AIG's record loss increased worries about the global credit crisis.
"What we have for now could well end up being a temporary lull before the pace picks up again," said James Hughes, market analyst at CMC markets in a note.
"But one point that yesterday's broad based sell-off in benefit of the dollar does make is that the currency continues to hang onto its favoured status despite the rather dubious outlook that's associated with the U.S. economy right now."
Markets will also remain focused on monetary policy decisions with the Bank of Canada expected to cut its key interest rate by half a point to a record low of 0.5 percent later on Tuesday ahead of policy meetings by the European Central Bank and the Bank of England on Thursday.
The ECB is expected to cut interest rates to an all-time low of 1.5 percent from the current 2 percent, with the BoE also seen cutting by 50 basis points to a record low 0.5 percent.
Sterling was up 0.6 percent at $1.4134.
The dollar was 0.65 percent higher at 97.83 yen, staying below a 3-1/2 month peak of 98.72 yen struck last week. (Reporting by Kirsten Donovan, editing by Mike Peacock)