* Nikkei up 3 pct, supporting Japanese investor risk appetite
* RBA chief says Australian interest rates "pretty low"
By Rika Otsuka
TOKYO, May 19 (Reuters) - The yen dipped against the dollar on Tuesday after falling sharply the previous day when a rally in shares revived risk appetite and comments from a Japanese official sparked concern about the possibility of intervention.
The Australian dollar rose towards recent seven-month peaks against the yen and dollar, underpinned after Reserve Bank of Australia Governor Glenn Stevens said that Australian interest rates were "pretty low".
"The yen remains vulnerable as firmness in stocks bolster risk appetite, with people encouraged to buy higher-yielding currencies such as the Australian dollar against the yen," Tsutomu Soma, a senior manager in foreign securities department at Okasan Securities.
The dollar edged up 0.2 percent from late U.S. trade to 96.49 yen.
Tokyo's Nikkei share average was up nearly 3 percent after Wall Street climbed on hopes the economic slump is easing.
The U.S. currency had hit a two-month low of 94.55 yen on Monday on trading platform EBS but rebounded on remarks from Japan's vice finance minister, Kazuyuki Sugimoto, that he was watching moves in the foreign exchange market carefully.
His comments rekindled intervention fears among market players, pushing the yen down across the board, although few traders expected any imminent action beyond verbal intervention.
The yen had rallied last week as optimism over the global economic outlook faded on weak U.S. and European data, but traders said Monday's jump in the dollar and cross/yen could be explained by short-covering or closing of broad yen-buying positions.
The euro was little changed from late U.S. trade at $1.3558. It gained about 0.5 percent against the U.S. currency on Monday on higher share prices that supported expectations that the worst has passed in the global recession.
The European single currency inched up 0.1 percent to 130.71 after a jump of 1.7 percent in the previous session.
Sterling slipped 0.1 percent to $1.5327 after gaining 1.2 percent on Monday.
The Australian dollar rose 0.3 percent to $0.7661 after climbing more than 2 percent on Monday.
The comments from Stevens affirmed expectations that the RBA is near the end of its easing cycle, and that rates will be held steady for now. The central bank has cut rates by 425 basis points since September to a record low of 3 percent.
Minutes of the RBA's May 5 policy meeting showed on Tuesday that the central bank would monitor tentative signs of an improvement both in the global economy and at home before deciding on the next move in interest rates.
The Australian dollar climbed 0.4 percent to 73.85 yen.
Investors will look to U.S. housing starts data at 1230 GMT for evidence to support optimism about the prospects for an economic recovery.
"Stronger housing figures are likely to boost stocks, further prompting investors to dump long yen positions," said Osamu Takashima, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ.
A Reuters poll showed economists expect housing starts to have risen to 0.52 million in April from 0.51 million in March. Building permits are expected to have increased to 0.53 million from 0.516 million. (Editing by Hugh Lawson)