(Updates throughout to U.S. market open, changes dateline; previous LONDON)
* Dollar Index retreats after hitting 10-day high
* Yen rises on safe haven demand
By Saqib Iqbal Ahmed
NEW YORK, Feb 22 (Reuters) - The dollar slipped against a basket of major currencies on Thursday, as its rally from a three-year low last week ran out of steam, and the yen soared as heightened volatility led investors to favor the Japanese currency.
The dollar index , which measures the greenback against a basket of six major currencies, was down 0.22 percent at 89.805. Through Wednesday, the index gained nearly 2 percent since hitting a three-year low of 88.253 on Friday.
"The dollar has firmed up over the last week against basically all the currencies. And then we had another push yesterday," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
The index finished 0.3 percent higher on Wednesday after minutes of the Federal Reserve's January meeting showed policymakers were more confident of the need to keep raising interest rates. "You could argue that a lot of the good news is out there and it's not a bad time to take the opportunity from the minutes to reposition yourself," said Trang.
"You are seeing a little bit of that today," he said.
The dollar slipped 0.8 percent against the yen to 106.9 yen, as increased volatility across markets sent traders looking for a safe haven.
Stocks, bonds and currency markets have experienced a pickup in volatility over the last few weeks.
The yen tends to benefit during times of heightened volatility as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialize.
"It kind of makes sense, when you see this much volatility, that people are just looking for a place that will have a little bit more stability," said Trang.
The euro was 0.32 percent higher against the greenback at $1.2321.
European Central Bank policymakers meeting last month felt it was too early to change their communication stance to signal a normalization of policy, even if confidence was growing that inflation would finally rise back to target, minutes published on Thursday showed. Sterling was up 0.17 percent against the dollar as markets grew more convinced that the Bank of England will raise interest rates again in May on the back of an improving economy. The Canadian dollar slipped to a two-month low against its U.S. counterpart, before recovering ground to trade little changed on the day, after a surprise drop in domestic retail sales dented prospects for further Bank of Canada interest rate hikes over the coming months. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: World FX rates in 2018 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis)
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