FOREX-Yen and dollar gain; U.S. consumer sentiment sours

* U.S. consumer sentiment sours in July

* Market watching stocks, U.S. earnings for direction

* SNB to stick "decidedly" to preventing franc rise - Roth

* ECB starts covered bond purchases slowly (Recasts with reaction to U.S. data, adds comment, updates prices)

By Nick Olivari

NEW YORK, July 10 (Reuters) - The dollar and yen rose against other major currencies on Friday with investors cautious as the U.S. corporate earnings season began and benchmark stock indexes fell.

A report showing that U.S. consumer sentiment soured in July further bolstered the two currencies, which strengthen when investors become averse to risk due to pessimism about the prospects for a global recovery.

The yen hit a five-month high against the U.S. dollar this week and surged to two-month highs against the euro and Australian dollar as investors unwound bets in riskier assets that they had made using the low-yielding Japanese currency.

The yen lost some of those gains on Thursday but then held its ground as other currencies lost momentum after U.S. stocks fell. [ID:nN10504988]. A profit warning from Chevron added to the specter of a weaker-than-expected second half economic recovery. [ID:nN09478562].

"It underlines the ongoing gloom facing the U.S. consumer and further delays prospects for a near-term recovery," said Brian Dolan, senior currency strategist at Forex.com, Bedminster, New Jersey of the most recent U.S. data. "That will weigh heavily on risk sentiment, pushing stocks and yen crosses down and boosting the dollar."

Midway through the New York session, the euro was 0.8 percent lower at $1.3920 . The euro was down 1.4 percent against the yen at 128.53 yen.

The U.S. dollar index, which tracks performance against a basket of six major currencies, was up 0.6 percent at 80.385 <.DXY>.

The dollar was down 0.7 percent at 92.33 yen , going as low as 91.80 during the New York morning, according to Reuters data. That was just above the five-month low.

The yen gained in particular this week as the U.S. dollar status as a reserve currency came under scrutiny at the G8 meeting in Italy, although reaction was muted to calls from China for a review of the reserve currency system at a meeting of world leaders on Thursday.

Support from softer equities "and some worries over the potential for near term economic recovery, both of which have helped the dollar index push back towards its opening level for this week," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto in a note to clients.

SWISS FRANC EYED

The Swiss franc fell after Swiss central bank chief Jean-Pierre Roth said in an interview published on Friday the Swiss National Bank was sticking "decidedly" to its policy to prevent a strengthening of the Swiss franc. [ID:nWEA0380]

The dollar gained 0.8 percent on the day to 1.0867 Swiss francs while the euro rose 0.2 percent to 1.5126 francs.

Sterling fell 1 percent on the day to $1.6180 , relinquishing gains made on Thursday in part after the Bank of England surprised markets by not using the remaining 25 billion pounds available under the current asset-buying program.

In other news, the European Central Bank and euro zone national central banks bought 23 million euros' worth of covered bonds under the 60 billion euro programme launched this week, the ECB said on Friday. [ID:nLA401728].