* US July CPI and August sentiment send dollar lower vs yen
* Euro pressured on the day
* EZ July inflation falls slightly more than first estimate
(Recasts, updates prices, adds comment)
By Nick Olivari
NEW YORK, Aug 14 (Reuters) - The yen extended gains against the euro and the U.S. dollar after a report showed U.S. consumer sentiment worsened in August, adding to concerns about the U.S. recovery and prompting a rise in risk aversion.
The Reuters/University of Michigan preliminary August consumer sentiment survey posted at 63.2, compared with the 68.5 expected.
The report followed an earlier release that showed U.S. consumer prices were flat in July over June but fell over the past 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 3.0 percent to their lowest close in six weeks.
"It does reinforce the view that there's still a long way to go before you see a sustainable turnaround in sentiment," said Samarjit Shankar, director of global strategy at Bank of New York Mellon in Boston. "As we saw from the retail sales numbers yesterday, consumer spending is also not really up to expectations. It just underscores the vulnerability of the recovery so far."
Mid morning in New York, dollar was down 0.9 percent at 94.51 yen.
It was on track for a 3.2 percent fall on the week at current prices. The euro fell 1.4 percent to 134.48 yen, and was down 2.9 percent for the week.
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 0.4 percent at $1.4233, after hitting a session high of $1.4306. Analysts say a recent high of $1.4448 would likely remain firm resistance.
Markets showed little reaction to a 0.7 percent fall on the year in euro zone inflation in July, compared with an initial estimate of -0.6 percent.
That came after data the previous day showed the French and German economies both unexpectedly grew on the quarter in April-June.
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 it last traded down 0.4 percent at $0.8378 as risk aversion rose.
The New Zealand dollar rose 0.4 percent after ealirer touching its highest since September 2008. It last traded at $0.6812.
The rise came after New Zealand's retail sales rose for the first time in nearly two years in the June quarter and the housing market showed more signs of stabilising, backing views of a gradual recovery and that rates will remain on hold in the coming months.
(Additional reporting by Wanfeng Zhou in New York and Tamawa Desai in London) (Reporting by Nick Olivari; Editing by Theodore d'Afflisio)