FOREX-Yen redeemed as US dollar falls by wayside, Aussie also up

* Short covering lifts yen as Wall St hits the skids

* Yen, Aussie & kiwi among top performers overnight

* US dollar still nursing post-payrolls headache

By Ian Chua

SYDNEY, Jan 14 (Reuters) - The yen held onto broad gains early on Tuesday, having staged a solid rally against sterling, the U.S. dollar and euro following a selloff on Wall Street and a further drop in Treasury yields.

Investors were forced to unwind stretched short positions in the Japanese currency in the wake of the poor U.S. jobs numbers and as U.S. stocks .SPX posted the biggest one-day fall in more than two months.

Sterling bought 168.86 yen GBPJPY=R , having skidded 1.7 percent, while the U.S. dollar traded at 103.03 yen JPY= following a 1.1 percent drop. The euro fetched 140.80 yen

EURJPY=R after suffering a 0.9 percent slide.

"With U.S. equity indices down 1.26 percent Monday and USD/JPY sharply lower, markets in Japan could open lower Tuesday, which in turn could feedback into more pressure on USD/JPY," analysts at BNP Paribas wrote in a note to clients.

"However, bearish JPY remains a high conviction view for many market participants and we expect the pair to find buying interest ahead of 101.50."

Friday's disappointingly soft payrolls report has raised doubts about the health of the world's biggest economy, driving investors to push out the timing of the first hike in the Fed funds rate into late 2015 from mid-2015. 0#FF:

All that left the U.S. dollar probing two-week lows against a basket of major currencies .DXY . It would have fallen even further if not for sterling, itself a victim of recent disappointing domestic data.

The pound shed 0.6 percent to $1.6383 GBP=D4 . The euro, meanwhile, went nowhere after Friday's rally, remaining steady around $1.3670 EUR= .

Along with the yen, commodity currencies emerged best dressed after last night's shakeout in New York with both the Australian and New Zealand dollars rising to around one-month highs on the greenback.

The Aussie last traded at $0.9051 AUD=D4 after peaking at $0.9087, while the kiwi was at $0.8374 NZD=D4 , not far from an overnight high of $0.8391.

Even the down beaten Canadian dollar staged its first positive session in about a week, rising to C$1.0859 per dollar

from a four-year low of C$1.0946 per dollar.

There is nothing in the way of market-moving Asian data on Tuesday, leaving the focus squarely on equities.

(Reporting by Ian Chua.)

((ian.chua@thomsonreuters.com)(+61 2 9373 1871)(RM: ian.chua.thomsonreuters.com@reuters.net))

Keywords: MARKETS FOREX/