* 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 gained against the dollar and the euro on Wednesday, after data showed Japan's economy expanded at the fastest pace in a year in the first quarter and some investors pared bets on further stimulus.
Japan's economy expanded by an annualised 1.7 percent in January-March, easily beating the median market forecast for a 0.2 percent increase and rebounding from a 1.7 percent contraction in the previous quarter, the Cabinet Office data showed. 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."
Many 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.
The dollar notched its session high of 109.27 yen JPY= just ahead of the GDP release, and subsequently fell as low as 108.73. It was last down 0.3 percent at 108.84.
Overnight, the U.S. currency briefly spiked to 109.65 yen, its highest since April 28 after data showed U.S. consumer prices recorded their biggest increase in more than three years in April. ECONUS
The greenback, however, drifted off the high as U.S. equities flagged and nudged down Treasury bond yields.
The euro slipped 0.3 percent against the yen to 123.11 EURJPY= .
Against the dollar, the euro was slightly lower at $1.1309 EUR= after closing little changed against the dollar overnight.
The pound slipped 0.2 percent to $1.4451 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 U.K. inflation data.
The Australian dollar AUD=D4 slipped 0.3 percent to $0.7302, 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)