* Japan economy expands more than expected, dodges recession
* Sterling, Aussie slip after overnight gains
By Lisa Twaronite and Shinichi Saoshiro
TOKYO, May 18 (Reuters) - The yen firmed against the dollar on Wednesday after data showed Japan's economy unexpectedly expanded at the fastest pace in a year in the first quarter, but later gave up most of its gains on views that more stimulus is needed to keep growth on track.
Japan's economy expanded by an annualised 1.7 percent in January-March, easily beating the median market forecast for a scant 0.2 percent increase and rebounding from a 1.7 percent contraction in the previous quarter, the Cabinet Office data showed. some investors pared bets on further stimulus after the better-than-expected headline figure, many noticed the details of the GDP report were not consistently bright.
"The yen strengthened a bit because growth was stronger than many had expected," said Ayako Sera, market strategist at Sumitomo Trust and Banking. "But looking at the details, there were still some concerning areas, including capital spending."
Chief Cabinet Secretary Yoshihide Suga told a news conference after the data that Japan is making steady progress towards beating deflation but private consumption continues to be weak with the effect of a sales tax hike in 2014 remaining. He reiterated that there is no change to Japan's plan to raise the tax again next year. analysts said Japan narrowly dodged recession, defined as two straight quarters of contraction, because of the boost from the extra day in a leap year. The Bank of Japan chose to hold policy steady at its last meeting, but many still believe it will muster additional easing steps as early as next month.
Some 80 percent of analysts surveyed by Reuters from May 11-17 expect the BOJ to take action, including a combination of cutting negative interest rates further and boosting its purchases of government bonds, exchange-traded funds and corporate bonds. dollar JPY= fell as low as 108.73 yen after the GDP release, but then clawed its way back to a session high of 109.39 yen. It was last down slightly at 109.20.
Overnight, the U.S. currency briefly spiked to 109.65 yen, its highest since April 28, after data showed U.S. consumer prices rose the most in more than three years in April. But it drifted off the high as U.S. equities flagged and nudged down Treasury bond yields.
The euro slipped 0.2 percent against the yen to 123.22 EURJPY= .
Against the dollar, the euro was 0.3 percent lower at $1.1284 EUR= after closing little changed against the dollar overnight.
The pound slipped 0.2 percent to $1.4431 GBP=D4 . Sterling spiked to $1.4524 overnight after a pair of polls showing the "In" camp well ahead in the run-up to Britain's June 23 referendum on European Union membership. gains were later trimmed by lower-than-expected UK inflation data.
The Australian dollar AUD=D4 slipped 0.6 percent to $0.7282, giving back some of the previous session's rally on minutes of the Reserve Bank of Australia's (RBA) May policy meeting, which encouraged markets to pare back the chances of a cut in interest rates. (Editing by Simon Cameron-Moore and Kim Coghill)