* Dollar back below 121.00 yen, euro under 149.00 yen
* Yen broadly higher as short positions are squeezed
* Another big fall in oil spooks market, CAD hit
By Ian Chua
SYDNEY, Dec 9 (Reuters) - The yen held onto sizeable gains early on Tuesday, having staged a broad short-covering rally as a big drop in oil prices hit global risk appetite.
Both the dollar and euro fell from multi-year peaks with the greenback sliding to 120.67 yen, from a high of 121.86. The common currency retreated to 148.59 yen from 149.79.
Commodity currencies were hit particularly hard. The Australian dollar fell to 99.79 yen reaching a low last seen on Nov. 11. It has since drifted back to 100.08 yen.
Its New Zealand peer slid to 92.35 yen, retreating from a seven-year high of 93.97 set just on Friday.
Traders said investors were forced to take profits on bearish yen trades as a four-percent drop in oil prices to five-year lows triggered a selloff in energy stocks. That, in turn, saw the S&P 500 suffer its biggest fall since October.
Currencies of oil-producing countries fared poorly with the Canadian dollar reaching a fresh five-year low of C$1.1486 per USD. The Norwegian crown fell to a 5-1/2 year trough of 7.1872 per USD.
Asian stocks should track Wall Street lower in a move that will probably continue to support the yen in the hours ahead.
Bank of New Zealand currency strategist Raiko Shareef said there also appeared to be growing speculation that the yen's depreciation has come about too quickly.
"Japanese officialdom would be quick to agree, now sensitive to the complaints of Japan's importers. No doubt helped by some post-payrolls profit-taking, this is USD/JPY's biggest single-day fall since mid-October," he said, referring to Monday's performance.
Indeed, the sharp fall in dollar/yen helped drag the greenback down against the euro, which popped back above $1.2300 , from a two-year trough of $1.2247.
Still, investors were likely to remain wary of buying the common currency amid speculation that the European Central Bank (ECB) was poised to ease policy further early next year.
Executive Board member Benoit Coeure kept those expectations alive on Monday, saying policymakers last week agreed unanimously to assess how and when to react to downward inflation risks in early 2015, and that they could then change their asset buying plans.
Several Federal Reserve officials spoke on Monday as well, but stuck to a dovish script that offered nothing new in terms of when the central bank will likely lift interest rates. (Editing by Diane Craft)