* Dollar recovers early losses, market braces for Bernanke
* High-risk currencies trim gains as share mkts drop
* Euro retreats from day's high after weak Ifo
(Releads, updates throughout)
By Naomi Tajitsu
LONDON, Feb 23 (Reuters) - The dollar recovered from early losses on Tuesday as caution ahead of testimony from Federal Reserve Chairman Ben Bernanke cut risk demand and kept the euro near a nine-month low. The Australian dollar hit a one-month high against the U.S. dollar on the back of optimistic comments about Australia's mining sector, but then trimmed gains, while a drop in European share markets dented early demand for higher-risk currencies.
Early demand for euros fizzled after data showed Germany's Ifo business sentiment index unexpectedly fell this month, but the single currency was supported against the Swiss franc following a jump in Asia, where traders said the Swiss central bank had been buying euros.
The dollar recovered from a session low against a currency basket in a move that suggested investors were wary of taking on big positions ahead of Bernanke's testimony, which begins on Wednesday, according to some analysts.
The market will be looking for any comments on the Fed's decision late last week to raise its discount rate -- the rate charged to banks for emergency loans, which was lowered after the collapse of Lehman Brothers.
Some market participants had taken the move as laying the groundwork to raising interest rates, although the Fed emphasised the move was purely technical.
"The Fed has to explain why it raised the discount rate between meetings ... they seem to be bringing the (monetary) normalisation period foreward, so they must explain why," said Peter Frank, currency strategist at Societe Generale in London.
"The market is concerned about the timeline of a rise in the fed funds rate. Any comments that suggest a rate rise in the second half of this year rather than next year will be bullish for the dollar."
San Francisco Federal Reserve Bank President Janet Yellen said the U.S. economy still needed extraordinarily low interest rates as inflation was "undesirably low", a view some expect Bernanke may echo. [nFEDAHEAD]
RISK DEMAND FIZZLES
By 1058 GMT, the dollar was a touch higher on the day at 80.538, recovering from a fall of roughly half a percent to the day's low of 80.088. Last week it hit an eight-month high of 81.342.
Helping the safe-haven dollar's recovery was a 0.6 percent fall in European shares <.FTEU3>, reversing earlier gains.
The euro <EUR=> was down 0.2 percent on the day at $1.3567, erasing an earlier jump of 0.7 percent to a day's high at around $1.3690.
It fell from the day's high after the German Ifo institute's indices for Germany's business climate and current conditions fell more than forecast in February. [ID:nBAE003734]
Analysts said the market remained mindful of ongoing concerns about Greece's fiscal problems, which would keep the euro vulnerable to selling even if it did benefit from short-term bouts of profit taking after recent weakness.
The Australian dollar <AUD=D4> hit a one-month high of $0.9072 after Reserve Bank of Australia Deputy Governor Ric Battellino said the country was enjoying a mining boom that could last beyond 2020. [ID:nSYA008213]
It later trimmed some gains to trade around $0.9023.
The euro traded 0.2 percent higher against the Swiss franc at 1.4660 francs, after suddenly jumping to around 1.4680 from around 1.4635 in Asian trade.
Traders had said the SNB had been seen buying the euro in an effort to stem the Swiss currency's strength, but officials at the central bank declined comment.
(Editing by Nigel Stephenson/Susan Fenton)