* Yen steady to firmer vs major currencies
* Yen takes breather after this week's sharp slide
* Risk appetite still seen on recovery track
* Japan posts trade surplus in Feb but impact on yen limited
By Masayuki Kitano
TOKYO, March 25 (Reuters) - The yen was steady to firmer against the euro and the Australian dollar on Wednesday, getting some respite after its fall to multi-month lows the previous day.
The dollar dipped against the euro, but held on to much of the gains made the previous day on profit-taking in the wake of its slide the previous week, when the dollar suffered its biggest weekly fall since 1985 against a basket of six major currencies. The dollar, which tends to attract safe-haven buying in times of market stress, was also supported after U.S. shares slipped on Tuesday, a day after euphoria over a U.S. plan to rid banks of bad assets triggered a huge rally on Wall Street.
But gains in global equities and commodity prices over the past few weeks suggested that risk appetite was on a recovery track, boding ill for the yen and the dollar against higher- yielding currencies, traders said.
While there is uncertainty about how long this will last, risk aversion does seem to be easing for now, said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. "There are clear signs of a recovery in risk tolerance among institutional investors," Tomita said.
The euro held steady against the yen at 131.85 yen, having pulled back from a five-month high of 134.50 yen hit on trading platform EBS on Tuesday.
Against the dollar, the euro was 0.1 percent higher at $1.3478, having retreated from a 2-½ month high of $1.3739 hit last week.
With its rally last week, the euro has made a 50 percent retracement of its fall from a December peak of $1.4720 to this month's low of $1.2457. The euro was due for some profit-taking, said a trader for a Japanese trust bank, referring to the euro's 1.3 percent slide against the dollar on Tuesday.
The dollar index saw its biggest weekly drop since 1985 last week, pummelled after a surprise announcement by the Federal Reserve that it would buy a large amount of long-dated Treasuries.
That raised concern of an oversupply of the world's main reserve currency.
The dollar was steady against the yen at 97.85 yen, having come off a one-month low of 93.55 yen hit last week.
The dollar index was steady at 84.081, having come off a 2-½ month low of 82.631 hit last week.
Although the yen has regained some ground after dropping on Tuesday to a five-month low against the euro and a 4-½ month trough versus the Australian dollar, it is likely to stay on the back foot, said a trader for a Japanese trust bank.
"Its role as a safe-haven currency has diminished," the trader said. "There is no reason to buy the yen actively."
The Australian dollar dipped 0.1 percent against the yen to 68.14 yen, off a 4-½ month high of 69.60 yen hit on Tuesday.
The yen's reaction was subdued to data showing Japan's trade balance returned to a surplus in February for the first time in five months. The 82.4 billion yen ($841.6 million) surplus contrasted with economists' forecasts for a deficit of 10.9 billion yen.
The surplus comes after Japan posted its largest deficit ever in January, when exports fell sharply due to a slowdown in the global economy.
But seasonally adjusted data showed a trade deficit for February and analysts said exports were likely to stay in decline for a while due to weak overseas demand.
"This data by itself does not offer much reassurance on Japan's trade balance, so there is no need to react with yen buying," said Masafumi Yamamoto, head of foreign exchange strategy Japan for the Royal Bank of Scotland. ($1=97.91 Yen) (Editing by Hugh Lawson)