* U.S. dollar gains; rate differentials to weigh
* U.S. debt limit seen pressuring dollar
* Euro, Aussie may pullback further vs yen (Updates prices, adds quotes, changes byline)
By Julie Haviv
NEW YORK, April 11 (Reuters) - The dollar paused from last week's sharp decline against the euro on Monday, but a strong bearish stance toward the greenback is seen persisting ahead of next month's U.S. debt limit debate and on global central bank monetary policy disparities.
The dollar found support after a U.S. government shutdown was averted on Friday, and the dollar's rise was widely viewed as overdue after its sell-off versus the euro for the last four months. So far in April the dollar is still down more than 2 percent.
Interest rate differentials between Europe and the United States, however, are expected to continue to support the euro following the European Central Bank's 25 basis point rate hike last week.
"The euro's drop today is nothing more than white noise, and the pullback should prove shallow," said Jessica Hoversen, foreign exchange and fixed income analyst at MF Global in New York.
The dollar's negative tone should remain in place as long as the U.S. Federal Reserve keeps interest rates low and while central banks abroad, namely the ECB and Bank of England, move closer to more normal borrowing costs, she said.
Even so, Hoversen said the euro will ultimately head lower this year, particularly after Portugal last week sought financial aid from the European Union and the International Monetary Fund.
"The ECB rate hikes are going to torpedo the fiscally weak peripheral nations such as Spain, in terms of higher bank funding and mortgage costs," she said.
Risk reversals for one-month euro/dollar options are still showing a solid bias for "puts" this year, though the currency has rallied 8 percent so far in 2011.
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For graphic on euro/dollar spot rate: http://r.reuters.com/hyz88r
ECB in graphics: http://r.reuters.com/kah88r
The euro zone's debt struggle: http://r.reuters.com/hyb65p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Inflation data, meanwhile, could potentially sway currency sentiment this week, with Germany, Spain, Hungary, Sweden and the United Kingdom all releasing reports on Tuesday. In the United States, inflation data will be released on Thursday and Friday.
DOLLAR WEIGHED BY DEBT CEILING
Currency traders have also started to talk about the U.S. government debt hitting its limit in a month's time, a scenario which should renew pressure on the dollar.
"We're having some sort of relief rally after the U.S. government did not shut down as feared," said David Watt, senior currency strategist at RBC Capital Markets in Toronto. "But I think gains in the dollar will be limited because the focus will be on the U.S. debt limit."
The United States is $95 billion away from reaching the statutory $14.3 trillion ceiling, according to the latest data.
In early afternoon New York trading, the euro
The yen, meanwhile, was off an 11-month low against the euro and a 2-1/2-year trough versus the Australian dollar as yet another earthquake in Japan led some investors to pare bearish bets against the country's currency.
A fresh strong aftershock hit Japan on Monday, while the evacuation zone around its crippled nuclear plant was expanded because of high levels of radiation. For more see [ID:nL3E7FA058].
The euro was down 0.4 percent at 122.24 yen
Technical indicators such as the 14-day relative strength index and slow stochastics also suggested that the euro and Australian dollar are in overbought territory against the yen, pointing to the possibility of a near-term pull-back. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Leslie Adler)