* Yen hits 1-mth high vs euro but later gives up some gains
* Focus on banks after Bank of America's bad loans jump
* Euro still close to one-month low vs dollar, focus on ECB
By Masayuki Kitano
TOKYO, April 21 (Reuters) - The yen slipped from a one-month high against the euro on Tuesday, as short-term investors pocketed profits, and retreated from the steepest of its gains against other majors made on renewed concerns about banks.
The yen initially added to a steep surge begun on Monday when U.S. equities slid after Bank of America reported a jump in non-performing assets, underscoring the banking sector's troubles.
It hit its highest since mid-March against the euro and a three-week peak against the British pound as the bank sector concerns tempered risk appetite and triggered buying back of yen, which has been a popular currency to sell against other majors.
But the Japanese currency later retreated after its gains cleared out near-term sell orders for its rivals, helping the euro, sterling and the Australian dollar to recover some ground against the dollar as well.
"Most of the activity in Tokyo time was on cross/yen. Once stop losses were triggered, the market made some sort of short-covering," said a senior trader at a large European bank.
The euro fell to 126.10 yen on trading platform EBS but later rebounded to 127.40 yen, up 0.7 percent from late U.S. trading on Monday.
The euro rose 0.2 percent against the dollar to $1.2947, but was not far from a one-month low of $1.2888 hit on EBS on Monday.
Sterling fell to 141.44 yen as sell orders were triggered at about 142.00, but then climbed 0.6 percent on the day to 143.17.
The trader said the market's focus would remain on banks as players await the outcome of stress tests by U.S. authorities to determine how well lenders would fare if the recession proved deeper and longer than expected. Results are expected on May 4.
There have been signs of improving investor risk appetite in recent weeks, as seen in the Australian dollar's rally to six-month highs against the yen and the dollar last week, but players were quick to dump those positions as stock markets fell.
Market players said the yen was unlikely to see the type of rally it experienced from late last year to early this year, when the low-yielding currency surged to 13-year highs against the dollar due to unwinding of yen carry trades.
"Unlike before, only limited players are left with yen-short positions, so the yen won't rise so much either, even if investors grow risk averse," said Minoru Shioiri, chief manager of FX trading at Mitsubishi UFJ Securities.
The dollar rose 0.5 percent to 98.38 yen, up from a three-week low of 97.66 yen hit on Monday.
FOCUS ON ECB
The euro has been under pressure in the past few sessions, hurt by uncertainty over what policy steps the European Central Bank may adopt next month.
ECB President Jean-Claude Trichet signalled on Sunday during a trip to Tokyo that the bank's next move could likely be an interest rate cut of 25 basis points.
But Trichet kept mum on details of plans for unconventional policy responses that are due to be unveiled at the ECB's policy meeting on May 7.
Some traders said the yen's early gains had benefited from flows linked to complex currency derivatives, with talk of dollar selling against the yen as a hedge against exposure to power-reverse dual currency (PRDC) notes.
There was also some talk of Australian dollar selling against the yen linked to the unwinding of positions taken in structured bonds.
The Australian dollar pulled up 1 percent against the yen to 69.10 yen, after falling to 68.10 yen earlier in the day and having slid more than 4 percent on Monday.
The Australian dollar hit six-month highs of 73.49 yen and $0.7328 last week. (Additional reporting by Satomi Noguchi and Charlotte Cooper in Tokyo and Vidya Ranganathan in Singapore; Editing by Edwina Gibbs)