* Euro gains vs dlr; trade still very thin
* Stocks gain; Aussie dlr at 12-day high vs U.S. dollar
* Dlr stays supported vs yen on better U.S. economic outlook (Updates prices; changes byline, dateline; previous TOKYO)
By Jessica Mortimer
LONDON, Dec 29 (Reuters) - The euro and higher yielding currencies such as the Australian dollar gained against the U.S. dollar on Tuesday, lifted by improved appetite for risk as equities gained ground.
Volumes were very thin, however, and analysts were wary of drawing too many conclusions from current intraday movements, with the euro still trading within its recent range against the dollar, albeit at the top end.
Against the yen, the dollar stayed supported, hovering close to a two-month high on the view that the U.S. economy is recovering well, which has lifted U.S. Treasury yields.
Later in the session, investors will watch for U.S. consumer
confidence for December at 1500 GMT and the Standard &
Poor's/Case-Shiller home price index for October at 1400 GMT for
further clues on how well the U.S. economy is faring.
"Anything that points in the direction of the Federal Reserve raising interest rates earlier than previously thought will support the dollar -- there has been no indication of this from the Fed but U.S. data recently has been coming in on the strong side," said Johan Javeus, SEB currency strategist in Stockholm.
"Trade is very, very quiet, but for now risk appetite is back on, stock markets are higher and the commodity rally has regained some strength which is positive for currencies such as the Australian dollar," he said.
At 0934 GMT, the euro was up 0.3 percent at $1.4421
The higher-yielding Australian dollar rose 0.8 percent to a 12-day high of $0.8950, edging back towards the $0.90 level.
Improved investor appetite for taking on risk was reflected
in a 0.3 percent rise in European shares <.FTEU3> and as oil
prices
The dollar index, a gauge for the greenback's performance against other six major currencies, fell 0.3 percent to 77.427 <.DXY>.
The dollar index was still in sight of a 3-1/2-month high of 78.449 hit last week, although some traders said the U.S. currency may struggle to rise further after speculators have finished covering short dollar positions.
Data on Monday showed speculators were long in the U.S. currency for the first time since May, ending 32 straight weeks of short dollar positions. [nN28138355]
Against the yen, the dollar was steady at 91.56 yen
Traders said upward pressure on long-term Treasury yields is providing support to the dollar against the yen after U.S. government bonds traded lower the previous day and pushed the benchmark 10-year note yield to its highest in nearly five months. [US/]
"Given the fact that upward pressure remains on Treasury yields, dollar/yen still has the potential to reach as high as mid-92 within the year," said Toshihiko Sakai, a manager for forex trading at Mitsubishi UFJ Trust Bank.
The dollar showed little reaction to the Federal Reserve's proposal on Monday to create a new mechanism, a "term deposit facility," to help the central bank's policy-makers withdraw money from the banking system when they decide to tighten monetary policy. [nFEDAHEAD]
(Additional reporting by Satomi Noguchi in Toyko; editing by Chris Pizzey)