* Yen benefits from renewed risk aversion, euro pressured
* Euro zone inflation falls slightly more than estimated
* U.S. July CPI sends dollar lower against the yen (Adds comments, details, changes byline)
By Vivianne Rodrigues
NEW YORK, Aug 14 (Reuters) - The Japanese yen rose against the euro and the dollar on Friday after a report showed U.S. consumer sentiment worsened in August, adding to concerns about the outlook for the U.S. economy and increasing risk aversion.
The Reuters/University of Michigan Surveys of Consumers preliminary August reading fell to 63.2, below market expectations for 68.5.
The report followed a release that showed U.S. consumer prices were flat in July from June but fell over the previous 12 months by the most since 1950.
The data left the euro pressured against the dollar, but investors bought yen on lower risk tolerance. The trend to risk aversion was apparent earlier in the day when Chinese shares fell 3 percent to their lowest close in six weeks.
"There's still a long way to go before you see a sustainable turnaround in (risk) sentiment," said Samarjit Shankar, director of global strategy at the Bank of New York Mellon in Boston. "(Friday's data) just underscores the vulnerability of the recovery so far."
In afternoon trading in New York, the dollar was down 0.7 percent at 94.74 yen, on track for a drop of more than 3 percent on the week.
The euro also fell against the yen, or 1.2 percent on the day to 134.68 yen.
The yen's gains were also attributed to potential fund repatriation by Japanese investors related to some $57.5 billion in redemptions and coupon payments on U.S. Treasuries next week, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ in London.
The euro was down 0.5 percent against the dollar at $1.4211, having hit a session high of $1.4306. Technical analysts said a recent high of $1.4448 would likely remain a firm level of resistance.
Markets showed limited reaction to a 0.7 percent fall on the year in euro zone inflation in July, compared with an initial estimate of minus 0.6 percent.
The previous day data showed the French and German economies both unexpectedly grew in the April-June quarter.
RISK SENTIMENT
Some analysts said the drop in European and U.S. stocks after sharp gains earlier in the week contributed to the new bout of risk aversion. Volatility in markets is also expected to remain high, they noted.
"The dollar should continue to benefit as a safe haven amid any pullbacks in risk sentiment," currency strategists at UBS AG said in a note. "We might not see any significant shifts in investor conviction or trends until September."
The Australian dollar hit an 11-month high against the U.S. dollar earlier in the day after Reserve Bank of Australia Governor Glenn Stevens said that a normal interest rate would be well above the current rate of 3.0 percent.
But the aussie last traded down 1.3 percent at $0.8320 as risk aversion rose.
The New Zealand dollar also touched its highest since September 2008 but gave back its session gains to trade down 0.1 percent at $0.6777.
Gains in the kiwi were prompted by a rise in New Zealand's retail sales for the first time in nearly two years in the quarter to end June and the housing market showing more signs of stabilizing, backing views of a gradual recovery. (Additional reporting by Nick Olivari and Wanfeng Zhou; Editing by James Dalgleish)