* Dlr index pulls back from 2-wk low as Cohn exit shockpeters out
* Dollar/yen retraces losses as broader risk appetiterecovers
* Euro awaits ECB policy decision for cues
* ECB seen standing pat, stance amid US political confusioneyed
By Shinichi Saoshiro
TOKYO, March 8 (Reuters) - The dollar recovered ground onThursday, drawing relief from positive labour market data andthe White House saying Canada and Mexico, and possibly othercountries, may be exempted from planned U.S. import tariffs onsteel and aluminium.
Elsewhere on the currency markets, the euro trod water aheadof a European Central Bank meeting later in the global day, thatis expected to leave policy rates unchanged for now, but mayprovide clues to the future.
The dollar had weakened sharply following the resignation onTuesday of Gary Cohn, the top economic advisor to the WhiteHouse who was seen as seen as a bulwark against protectionism inthe Trump administration.
His departure had fanned fears of a potential global tradewar if U.S. President Donald Trump pressed ahead with proposalsfor tariffs on all imports of steel and aluminium.
Broader financial markets grew calmer, with Wall Streetparing losses overnight, after the White House raised thepossibility of exemptions. Some dealers have bet on thepossibility that the tariff threat was a negotiating ploy intrade talks with neighbours.
Amid growing pressure to exempt U.S. allies, Trump isexpected to sign a proclamation establishing the steel andaluminium tariffs during a ceremony scheduled for 2030 GMT. dollar's bounce was stoked further by Wednesday's dataon domestic private hiring and labour costs that reinforced theview of underlying strength in the U.S. economy.
The U.S. currency was steady at 106.130 yen JPY= afterslipping to as low as 105.450 the previous day in reaction toCohn's departure.
The dollar index against a basket of six major currencieswas effectively flat at 89.592 .DXY after pulling away from atwo-week trough of 89.407 set the previous day.
"The market has managed to digest Cohn's resignation," saidJunichi Ishikawa, senior FX strategist at IG Securities inTokyo. "That said, 'Trump risk,' which are developmentsassociated with the U.S. president and his circle, will continueto impact the market as once of the main themes of 2018,"
The euro was little changed at $1.2409 EUR= afterretracing a bounce earlier on Wednesday to a 2-1/2-week peak of$1.2447.
Focus for the common currency was on the ECB's policydecision at 1245 GMT. The central bank is all but certain tokeep policy unchanged but may tweak its communication stance tooffer at least a few clues about its progress towards ending itsunprecedented bond purchases later this year. normal circumstances the ECB decision would not be arisk event as the central bank is expected to stand pat onpolicy. But the ECB's stance will be watched carefully in thewake of political confusion in the United States," Ishikawa atIG Securities said.
The Canadian dollar was at C$1.2914 CAD=D4 per dollar,having weakened to C$1.3002 on Wednesday but recovering on theprospect that Trump's tariffs may exempt Canada and Mexico.
The Mexican currency was at 18.72 pesos per dollar MXN=D2 following its recovery from 18.90 touched on Wednesday.
The Australian and New Zealand dollars were little changedat $0.7829 AUD=D4 and $0.7286 NZD=D4 , respectively. (Editing by Simon Cameron-Moore)