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* Yen hits four-year low vs dollar overnight
* Aussie and Kiwi gain vs dollar
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E
LONDON, Oct 20 (Reuters) - The dollar steadied in early European trading on Wednesday, after an improvement in global risk appetite saw riskier currencies gain and the yen hit a four-year low against the dollar overnight.
European stock indexes were mostly up and the U.S. 10-year Treasury yield rose to a five-month high overnight, helped by rising optimism about the global economy and corporate earnings.
Reduced demand for safe-haven assets saw the dollar hit a four-year high of 114.695 versus the yen overnight. But by 0753 GMT the pair was flat at 114.375.
The dollar index was steady at 93.820, having fallen since it hit a one-year high of 94.563 last week on expectations that the U.S. Federal Reserve would tighten policy more quickly than previously expected. Traders priced in a tapering of Fed stimulus as soon as next month, followed by rate hikes next year.
Since then, expectations for Fed tightening have pulled back somewhat. Two-year Treasury yields retreated sharply overnight, signalling a scaling back of bets for Fed rate hikes.
ING FX strategists said in a client note the dollar's recent decline could be due to a combination of markets closing long-dollar positions and "a benign risk environment, where a strong US earnings season has continued to offset inflation/monetary tightening concerns."
"At this stage, it looks like the dollar is lacking some catalysts to contain the ongoing correction, and any support to the greenback may need to come from a cool-off in the recent risk-on mood in markets," ING said.
The Australian dollar, seen as a liquid proxy for risk appetite, was up 0.2% on the day at $0.74875, having hit its highest since July overnight.
The New Zealand dollar was also up 0.2% at $0.7169, having reached its highest since June overnight and gaining 1.4% so far this week.
The euro was a touch down on the day, at $1.1625.
The Canadian dollar was up around 0.1% at $1.235, ahead of Canadian inflation data due later in the session.
"As inflation persists above their target range and the virus gets under control, the central bank is likely to start thinking about tightening policy," Marshall Gittler, head of investment research at BDSwiss, said in a note to clients.
"A rise in the headline inflation rate today could be justification for such a move. In that respect it's likely to prove positive for CAD."
The British pound was down 0.1% at $1.37775, after data showed that British inflation slowed unexpectedly last month. But the figures did little to change expectations that the Bank of England will become the world's first major central bank to raise rates.
In cryptocurrencies, the first U.S. bitcoin futures-based exchange-traded fund began trading on Tuesday, sending bitcoin to a six-month high and just off its all-time peak, as traders bet the ETF could boost investment flows into cryptocurrencies.
At 0813 GMT, bitcoin was at around $64,008, compared to the all-time high of $64,895.22 it reached in April this year.
(Reporting by Elizabeth Howcroft; Editing by Vinay Dwivedi)