(Refiles to change day)
* Yen holds broad gains on short covering, qtr-end flows
* Dollar index flat, seen on the defensive on recovery doubts
* Euro firm, but euro zone worries and stocks to cap gains
By Anirban Nag
SYDNEY, June 25 (Reuters) - The dollar was on the defensive on Friday on doubts about a recovery in the U.S. economy while short covering and a general wariness towards riskier assets supported the yen.
Traders said quarter-end inflows were likely to help the yen
In Asian trade, the dollar
Traders said many investors who had gone short of the yen earlier this month on speculation that Japan's new Prime Minister Naoto Kan will support a weaker yen, were unwinding those positions.
Also helping the yen was the Federal Reserve's dovish statement this week, which contributed to a further fall in already low Treasury yields.
The dollar index <.DXY> was flat at 85.74, with traders expecting it to test support at 85.09, this week's low, in the near term as softer yields keep it on the defensive.
U.S. economic reports on weekly initial jobless claims and durable goods orders for May on Thursday were relatively firm yet could not lighten the market gloom.
The euro
Still, gains in the euro are likely to be checked by losses in stock markets, with the currency remaining highly correlated with the S&P 500 index <.SPX> at a solid 63 percent.
"The FX market should continue to take its lead from the stock market with further pressure in the risk market suggesting continued outperformances in the yen and the U.S. dollar at the cost of high beta currencies," JP Morgan said in a morning note.
The Australian dollar
The Aussie was seen supported at $0.8650, close to its 10-day moving average, with stops seen being placed down around $0.8605. (additional reporting by Rika Otsuka in TOKYO)
(Editing by Wayne Cole)