FOREX-Yen, dollar stung as stocks regain footing

(Updates prices, adds quote and comment, changes byline)

* Citi merger talk, equity rebound prompt FX turnaround

* Sterling, Aussie and NZ dlrs rise as risk aversion cools

* Weak EZ PMI a reminder of economic, financial distress

By Naomi Tajitsu

LONDON, Nov 21 (Reuters) - The dollar and the yen fell sharply against higher-yielding currencies on Friday as a rebound in global stocks from the previous day's rout prompted some investors to creep back into riskier assets.

European shares managed to stay in positive territory, taking a lead from gains in Asian stocks, while talk that beleaguered U.S. bank Citigroup (C.N) could explore a merger deal helped to quell Thursday's extreme risk aversion.

Analysts said Friday's move was a correction of yen- and dollar-buying earlier in the week, when investors dumped risky assets, including those in euros, sterling and the Australian and New Zealand dollars, on concerns about a global recession and the ongoing financial crisis.  Continued...