* Yen drops from 5-mth peak vs dollar; Dlr dips
* Higher risk FX recover as European equities rise 0.7 pct
* Focus on BoE decision at 1100 GMT
* Aussie gains but Australia-China rift casts a shadow
(Updates prices, changes byline, dateline; previous TOKYO)
By Jessica Mortimer
LONDON, July 9 (Reuters) - The yen fell on Thursday, correcting some of the previous session's steep gains which took it to a five-month high, with a recovery in European stocks helping buoy the euro and perceived higher risk currencies.
The dollar and the euro both fell more than 2 percent against the yen on Wednesday, posting their sharpest one-day drops since March.
The dollar also dipped on Thursday against currencies other than the yen, and analysts said sentiment was helped by a report from the International Monetary Fund late Wednesday saying that the global economy is slowly starting to pull out of a deep recession.
The U.S. second quarter corporate earnings season also began with a smaller-than-expected loss from aluminium giant Alcoa Inc , which helped European stocks to recover 0.7 percent and halt a five-session losing streak.
"It looks like the market got quite long in dollar/yen and it is quite usual to have a pullback later on," Commerzbank currency strategist in Frankfurt Lutz Karpowitz said.
"Equities are in positive territory early on, Alcoa results were above expectations and participants concluded that the move had been overdone a bit," he said.
He added, however, that the move was a corrective one that did not represent any fundamental shift in market sentiment.
Investors remained cautious of the prospect of possible disappointing earnings to come in the coming weeks, however, while they were also focusing on a Bank of England policy meeting at 1100 GMT.
At 0803 GMT, the dollar rose 0.5 percent from late U.S. trade to 93.30 yen, having hit a five-month trough of 91.80 on EBS trading systems the previous day.
The euro climbed 1 percent to 130.17 yen after falling as low as 127.00 yen on Wednesday, its lowest since mid-May.
Against the dollar, the euro was up 0.6 percent at $1.3948 after falling as low as $1.3830 on Wednesday, while the dollar index fell 0.5 percent to 80.341.
In recent weeks, optimism about the global economy's recovery prospects has started to wane, prompting investors to trim holdings of riskier assets such as stocks while seeking the safety of government debt.
"It is true that investors are less optimistic, especially after last week's U.S. jobs data," said Tsutomu Soma, a senior manager of foreign securities at Okasan Securities in Tokyo.
"But even so, their views on the global economy are not as bad as recent abrupt moves in exchange rates might suggest."
For an article on whether Japan will intervene to curb the yen's rise click on
CLOUDS FOR AUSSIE
Sentiment towards the euro was also helped by data showing German imports fell and exports rose in May to push the trade surplus to a higher-than-expected 10.3 billion euros.
Among currencies seen as higher risk meanwhile, sterling rose 0.5 percent against the dollar to $1.6138 ahead of the BoE decision, while the Australian dollar recovered 0.6 percent to $0.7832.
UK interest rates are seen remaining at a record low 0.5 percent, but market participants were nervous that the bank may opt to expand its quantitative easing programme.
In addition to Wednesday's increased risk aversion, investor worries about Australia's ties with its top trading partner China cast a shadow over the Australian currency. It fell more than 1 percent against the dollar on Wednesday and 3.5 percent against the yen.
China confirmed on Thursday the arrest of an Australian mining executive and three others on spying allegations, in a case that has rattled currency markets and raised questions about China-Australia relations.
(Reporting by Jessica Mortimer; Editing by Toby Chopra)