* Yen and euro on the backfoot as markets unwind recent moves
* Wall Street rallies hard with September Fed hike risk fading
* Aussie eyes capex data next, Chinese stocks also watched
By Ian Chua
SYDNEY, Aug 27 (Reuters) - The yen nursed broad losses early on Thursday as demand for the safe-haven currency dropped after an abrupt turnaround in risk appetite saw Wall Street post its biggest one-day gain in four years.
Comments from an influential Federal Reserve official downplaying prospects of a September interest rate hike helped improve market sentiment. In the currency market, investors reacted by unwinding recent moves that lifted both the yen and euro.
So the dollar, which would ordinarily fall on such a rate view, ended up outperforming its peers. The euro slid as far as $1.1290 EUR= , peeling further away from a seven-month peak of $1.1715 set early in the week. It last stood at $1.1332.
Not helping the common currency, the European Central Bank's chief economist said the risk has increased that the bank won't get inflation back up to where it wants, adding further action could be taken if necessary.
Against the Japanese currency, the greenback fetched 120.07 yen JPY= , recovering from a seven-month low of 116.15 plumbed on Monday.
New York Fed President William Dudley said an interest rate hike next month seemed less appropriate given the threat posed to the U.S. economy by recent market turmoil.
Steep falls and wild moves in Chinese stocks have compounded fears about slowing growth in the world's second biggest economy, sending markets across the globe reeling.
On Tuesday, China's central bank ratcheted up support for the stuttering economy by cutting rates and lowering the amount of reserves banks must hold.
Traders said Dudley's relatively dovish tones, combined with upbeat data showing a big increase in U.S. business investment plans have further helped soothe market nerves.
"Risk sentiment continued to recover overnight, driving further reversion of the market moves from late last week/early this week," said Greg Moore, senior currency strategist at RBC Capital Markets.
Sterling was a notable mover, suffering its biggest one-day fall in five months. It slid 1.4 percent to its lowest in nearly three weeks. The pound was last at $1.5480 GBP=D4 , near the overnight low of $1.5453.
Commodity currencies had a less dramatic session but their failure to rebound on the back of improved risk appetite suggested there was still a degree of market caution.
The Australian dollar stood at $0.7120, having drifted up from Wednesday's low of $0.7070. It remained near a six-year trough of $0.7044 set on Monday.
Traders said the market will continue to watch Chinese stocks for cues although Australia's capital expenditure data due at 0130 GMT will provide a bit of distraction.
(Editing by Shri Navaratnam)