FOREX-Yen cuts earlier gains as it slides vs Aussie

* Yen cuts earlier broad gains vs euro, Aussie, kiwi

* Cross/yen falls after low trade in ZAR/JPY - traders

* AUD/JPY then rises on buying by Japanese retail investors

* Aussie firms ahead of an expected RBA rate hike this week

By Satomi Noguchi

TOKYO, Nov 2 (Reuters) - The yen reversed steep early gains and slid on Monday in choppy trade as market players bought the Australian dollar against the Japanese currency ahead of an expected rate hike in Australia this week.

The yen advanced broadly in early Asian trade, touching its highest levels in several weeks, after exceptionally low trade in forex margin deals on the South African rand against the yen, which triggered a knock-on fall in crossyen pairs.

The rand is one of the high-yielding currencies into which Japanese retail investors have been shifting funds.

Japanese margin forex traders had roughly tripled their net long positions in rand/yen over the past couple of weeks to 40,356 contracts as of Friday.

See http://www.tfx.co.jp/mkinfo/document/fx_sellbuy.xls

The Australian dollar, also among popular high-yielding currencies, recovered from early lows on strong buying by Japanese retail investors ahead of a widely expected interest rate hike in Australia on Tuesday, a senior trader for a Japanese brokerage said.

The Australian and New Zealand dollars also fell early in the session partly due to a correction to their rallies of the past few months and soured market sentiment from news that CIT Group had filed for bankruptcy. [ID:nN01408863]

"The market has become sensitive to negative economic news, I think it is because risky financial assets had advanced to levels that seem to be overbought," said Minoru Shioiri, a senior manager of FX trading for Mitsubishi UFJ Securities.

"The foundation of the global economy is looking sound with good numbers out from Australia and some from the U.S.," Shioiri said.

The yen rose as high as 89.18 yen per dollar on trading platform EBS in early Asian trade, from around 90.10 per dollar late on Friday, when it gained over 1.5 percent.

It stood at 90.03 yen , up 0.1 percent on the day.

The Australian dollar initially fell to about 79.45 yen before recovering to gain 1.2 percent on the day to 81.42 yen .

Australia upgraded its economic and fiscal outlook on Monday, after the domestic economy proved more resilient than had been expected, underlining expectations for a rate rise this week. [ID:nSYD478854]

Strong Chinese data also pointed to sustained strength in the country's vast manufacturing sector, prompting traders to sell the dollar and the yen back, traders said.[ID:nSEO80466]

The euro traded at $1.4774, up 0.4 percent, recovering some of its losses made on Friday when it fell over 0.8 percent.

The Aussie , having lost nearly 2 percent on Friday, fell to a near one-month low of $0.8906 before rebounding to $0.9048, still down 1 percent on the day.

Traders said the Australian dollar was still suffering from closing of risk trades against the dollar.

The U.S. dollar, which tends to gain when doubts about a global recovery emerge, stayed above 76 against a basket of currencies <.DXY> <=USD> but traded heavily at 76.139, down 0.2 percent.

Traders said the mood was likely to remain cautious ahead of big event risks in the week ahead, including central bank meetings in Europe and the U.S. and the all-important U.S non-farm payroll data on Friday. [ID:nN30408927].

"The CIT bankruptcy is not the only source of FX volatility at the moment. The markets were already nervous ahead of a very busy calendar this week, despite in-line to better-than-consensus US data on Friday," said Barclays Capital in a note to clients.

"This leads us to believe that investors are taking some risk off the table and that positioning will be a big driver of FX this week."

The Federal Reserve's rate setting committee, which meets on Tuesday and Wednesday, is expected to keep rates unchanged but there is speculation it may change its wording. That could see markets pricing in a rate hike in the United States sooner than expected.

In Britain the focus is on whether the Bank of England will increase its asset-purchase programme to give the economy a boost.

The European Central Bank is also expected to hold rates steady but could provide some details on the schedule of open market operations for 2010. (Additional reporting by Anirban Nag in Sydney; Shinji Kitamura, Shinichi Saoshiro and Masayuki Kitano in Tokyo; Editing by Michael Watson)