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FOREX-Dollar stabilises after three-day decline; PMIs in focus

* Dollar index flat on the day

* Aussie and Kiwi dollar fall

* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

LONDON, Jan 22 (Reuters) - After three straight days of losses, the dollar stabilised on Friday and riskier currencies lost out as the recent equity market rally paused for breath, with business activity data in focus.

The dollar had fallen against a basket of currencies for the past three sessions as market optimism about U.S. President Joe Biden's fiscal stimulus plans prompted traders to seek riskier assets, with the New Zealand and Australian dollar gaining.

But that trend paused on Friday as market sentiment pulled back, global shares slipped off record highs and the U.S. dollar steadied, flat on the day at 90.118 at 0840 GMT. The dollar was still on track for its biggest weekly loss since mid-December.

Flash PMI readings for January from around the world will be closely watched by investors for indications about the pace of the global economic recovery. Investors have been tracking vaccinations, while much of Europe brought in tighter lockdowns at the start of the year to combat a resurgence in COVID-19. .

"Despite the positive vaccine news, lifting the mood from a market point of view, it is clear that there will be no similar uptick in economic activity until such times as restrictions start to get eased, perhaps sometime in Q2," Michael Hewson, chief market analyst at CMC Markets UK said in a note to clients.

"On the plus side manufacturing has been a strong performer for both Germany and France, helping to offset some of the slowdown in other parts of their economies," he added.

Data from Japan overnight showed that factory activity slipped into contraction in January and the services sector was more pessimistic as emergency measures to combat a COVID-19 resurgence hit sentiment.

At 0842 GMT, the Japanese yen was down around 0.1% against the dollar, at 103.63.

The French reading showed that business activity unexpectedly weakened in January, as a slowdown in services offset growth in manufacturing.

The euro appreciated somewhat on Thursday after the European Central Bank's policy rate announcement, as the bank said it may not need to use its full asset-purchase envelope.

President Christine Lagarde also said that the bank was "very carefully" monitoring the euro exchange rate.

At 0843 GMT, the euro was flat on the day at $1.21725 and set for a 0.8% gain this week.

The Australian dollar slipped after disappointing retail sales data, but was still set for a weekly rise. At 0844 GMT, it was down 0.5% on the day at 0.77285.

The New Zealand dollar was down around 0.5% at 0.7184 versus the U.S. dollar.

The Canadian dollar, which touched a three-year high of 1.2591 versus the U.S. dollar in the previous session, changed course and fell around 0.4% to 1.2690.

(Reporting by Elizabeth Howcroft, editing by Larry King)