* Yen gains on dollar, euro, commodity currencies
* Dollar tries to push back after losing ground
* Japan's Q1 GDP contracts 4.0%, in line with expectations
By Charlotte Cooper
TOKYO, May 20 (Reuters) - The yen rose against the dollar on Wednesday and took back the previous day's losses against the euro and higher yielders such as the Australian dollar after their rallies ran out of steam.
The dollar also inched up against the euro after losing ground on Tuesday, with caution setting in as to how far to push bets against the yen and greenback, which have been driving those currencies gradually lower across the board since February.
Currencies such as the Australian dollar and sterling have gained as investors have grown more optimistic that the global economy is past the worst and both hit multi-month highs against the greenback on Tuesday.
Analysts and traders said, however, a weak reading for U.S. housing data and a mixed day on Wall Street had given pause for thought, leading to profit-taking on currencies perceived as riskier than the dollar and the yen.
S&P futures fell in Asian trade on Wednesday, signalling a soft start to U.S. stocks later.
"The current poor state of the global economy and expectations for an economic recovery are playing tug-of-war, with few seeing clear direction in the market," said Mitsuru Sahara, chief manager of FX derivatives trading at Bank of Tokyo-Mitsubishi UFJ.
The dollar fell 0.5 percent to 95.50 yen, slipping towards a two-month low of 94.55 set earlier in the week.
The market is divided on how to trade dollar/yen at the moment, with both the U.S. and Japanese central banks holding interest rates close to zero to help economic recovery.
Both currencies have been losing ground now that investor risk appetite is on the mend and money is gradually being put to work in other assets. Against each other they have been stuck in a broad 95-100 range.
Dollar/yen's implied volatility has come down this month as low as 12 percent -- a level not seen since before U.S. investment bank Lehman Brothers collapsed in mid-September -- suggesting investors' risk aversion has eased.
Given an absence of any major economic events and a U.S. long weekend nearing, dollar/yen 1-mth volatility stayed near recent lows after Monday's rise to 15.1 percent traded when the dollar was testing lows below 95 yen.
Implied volatility is a gauge of how much the options market thinks a currency pair will move over a given time period and tends to rise when prospects grow for the yen to strengthen.
JAPAN'S ECONOMY CONTRACTS AGAIN
Japan's economy shrank a record 4.0 percent in the first quarter as companies slashed investment and exports, but economists saw a return to modest growth in the coming quarters even if the longer-term outlook remains unclear.
"This is of course a very bad number, but it was in line with expectations and is neutral in terms of market impact," said Toshihiko Matsuno, a senior strategist at SMBC Friend Securities.
"I expect there to be a growing consensus in the market that this is the bottom for the economy and that we will start to see a recovery from here."
With GDP out of the way, the euro fell 0.8 percent to 129.80 yen, losing all of Tuesday's gains made after an improvement business sentiment in Germany, which helped lift investor confidence and boosted interest in riskier assets.
German investors and analysts grew much more optimistic in May that economic conditions would brighten later this year, with the monthly ZEW poll on economic sentiment rising to a near three-year high.
The euro slipped 0.3 percent to $1.3595 after climbing half a percent on Tuesday. It faces heavy chart resistance above $1.37 at May and March highs.
Still analysts and traders said an improvement remained in underlying investor confidence.
"The market is still very skittish," said Mitul Kotecha, global head of FX strategy at Calyon in Hong Kong.
"But it seems the overall tone is still quite positive."
The Australian dollar has been a key beneficiary of that improved sentiment, hitting a seven-month high at $0.7785 on Tuesday and edging back towards a seven-month peak at 76.11 yen.
But it fell 0.6 percent on the day to $0.7696 on Wednesday and dropped 1 percent to 73.47 yen, while the New Zealand dollar shed 0.6 percent to 57.27 yen. (Additional reporting by Satomi Noguchi; Editing by Michael Watson)