* Dollar up vs yen in volatile trading
* Bernanke urges bold government action to fight crisis
* Geithner says will determine cost of stabilizing banks
* BoC rate cut weighs on Canadian dollar (Updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 3 (Reuters) - The dollar climbed against the yen on Tuesday in choppy trading as investors sought shelter in the greenback due to nagging worries about the viability of the U.S. banking system.
Federal Reserve Chairman Ben Bernanke's remarks to Congress calling for bold government action to pull the economy out of recession temporarily cheered investors who bet the United States would be the first major economy to recover. For details see, [ID:nN03352803].
The dollar initially pared some of its gains, but investor optimism was capped by returning uncertainty.
"The dollar is in great demand because of high risk aversion," said Dan Cook, senior market analyst, at IG Markets in Chicago. "There is still a lot of market uncertainty, a lot of volatility in the stock market. And the more uncertain it is, the better it is for the dollar."
Bernanke's comments came a day after the the U.S. government threw a $30 billion lifeline to American International Group (AIG.N: Quote, Profile,Research, Stock Buzz) after the insurer posted the largest quarterly loss in U.S. history.
In late trading, the dollar rose 1.1 percent to 98.24 yen <JPY=> as worries about Japan's economy continued to weigh on the Japanese currency.
The yen has also veered from its correlation with global stocks. A weaker yen no longer means increased appetite for risk and vice versa.
The euro was slightly down at $1.2571 <EUR=> after earlier rising as high as $1.2677.
Wall Street stock indexes initially rose, reversing some of the prior day's slide to 1997 lows, but they later fell back as investors pondered gloomy U.S. housing data including the outlook for the financial sector.
GEITHNER SPEAKS, TALF
U.S. Treasury Secretary Timothy Geithner, speaking on Capitol Hill, failed to provide an exact figure on how much stabilizing U.S. banks would cost the government, which also unnerved the stock market. He said President Barack Obama will work with Congress to determine the appropriate size and shape of future financial stability.
The U.S. government, however did launch the Term Asset-Backed Securities Loan Facility (TALF), now funded at $200 billion.
TALF will lend against securities backed by credit card, student, auto and small business loans in an effort to get lending going again. [ID:nN03460576]
But markets were looking for details on the "bad bank" plan, which will detail how financial institutions can offload their toxic assets.
"People are awaiting this 'Bad Bank' plan. They're looking for details ... and how banks can start over," said Melvin Harris, senior currency strategist, at Advanced Currency Markets in New York. "Once that happens, we're going to see a complete reversal in dollar strength."
In other currencies, the euro was weighed down overall by expectations of an imminent interest rate cut and worries about euro zone bank exposure to struggling Eastern European economies.
The European Central Bank is seen cutting rates by half a percentage point to an all-time low of 1.5 percent later this week, and on Tuesday, ECB council member Christian Noyer said policy-makers were considering all options, including unconventional monetary policy. [ID:nL3592164]
The Australian dollar, meanwhile, remained the top performer after the central bank left interest rates at 3.25 percent, saying fiscal stimulus would keep a deeper recession at bay. But it cut its early gains and was last up 1.5 percent at US$0.6387 <AUD=> after hitting US$0.6462 earlier.
Other central banks were not as upbeat as Australia's. The U.S. dollar was up against its Canadian counterpart at C$1.2923 <CAD=> after the Bank of Canada cut rates to a record low and said it may turn to quantitative easing.