* Dollar rebounds from 4-month low versus currency basket
* Yen gains as riskier assets retreat after rally
* U.S. stocks fall, keeping risk appetite subdued (Adds details, updates prices)
By Vivianne Rodrigues
NEW YORK, May 11 (Reuters) - The U.S. dollar rose on Monday, rebounding from a four-month low as a global decline in stock prices boosted the greenback's safe-haven appeal and investors bought the currency after a sharp sell-off last week.
Renewed risk aversion also boosted demand for the Japanese yen, which gained versus the euro and the dollar, as well as against higher-yielding currencies such as the Australian dollar. The U.S. and Japanese currencies are often perceived as safer assets in times of market volatility.
Earlier in the global session, hopes that the worst of the economic slump and financial crisis was over pushed the dollar to multi-month lows, but with the outlook still far from certain, investors were reluctant to sell the U.S. currency.
The dollar tumbled last week as stocks climbed, fueled in part by reports suggesting the bottoming of the economic slowdown, including a better-than-expected reading on the U.S. labor markets on Friday.
"The market was getting a little ahead of itself last week," said Vassili Serebriakov, currency strategist at Wells Fargo Bank in New York.
Serebriakov added that the recent rally in equities, commodities and commodity currencies was based more on improved market sentiment rather than fundamental data.
"Given the ongoing difficulties in the global economy, the recovery in the fundamentals will be much slower than the recovery in market sentiment." he said.
In late afternoon trading in New York, the ICE Futures U.S. dollar index, a measure of the dollar's value versus a basket of six other major currencies, was up 0.3 percent at 82.717 .DXY. Earlier on Monday it dipped to 82.292, its lowest since early January, after breaking support from its 200-day moving average on Friday.
The euro was down 0.4 percent at $1.3591 <EUR=>, having hit a seven-week high at $1.3667, according to Reuters data. It also fell 1.4 percent to 132.33 yen <EURJPY=> after briefly hitting a one-month high at 134.81, according to Reuters data.
The dollar was 1.2 percent lower at 97.33 yen <JPY=> after sliding to a session low of 97.28 yen, the lowest since the end of April.
RISK RALLY STALLS
Worries about the financial sector resurfaced after banking giant HSBC HSBC.L said first-quarter profits were "well ahead" of last year, but would have been down without accounting gains on its debt. For story see [ID:nLB716280].
John Rivera, currency analyst at DailyFX.com in New York, said that now that the results of government stress tests on major U.S. banks had been released, markets are starting to focus again on economic fundamentals.
This week should bring a "reality check" for the euro and help determine whether the currency's medium-term outlook is quite as sunny as it has recently appeared, said Interactive Brokers Group's Andrew Wilkinson.
So far, the jury is still out, as data on Monday from France and Italy showed industrial production deteriorated in both countries at a faster-than-expected clip. [ID:nLB205262]
The news was "the exact opposite of what investors have been getting excited about in recent weeks," Wilkinson said in a note.
Investors will get more information on whether the economy has really turned the corner when data on U.S. retail sales and industrial production are released this week. [ECI/US] (Additional reporting by Wanfeng Zhou; Editing by Leslie Adler)