* Retail investors that targeted hedge funds now focused on silver

* Analysts say risk sentiment to drive dollar in near term

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

TOKYO, Feb 1 (Reuters) - The safe-haven dollar faltered on Monday as risk sentiment improved, on hopes that retail investors who targeted hedge funds last week had turned their sights elsewhere.

The U.S. currency declined against most of its peers as Asian stocks rallied following four days of losses.

The riskier Australian dollar advanced, as did the British pound.

Earlier, the greenback had found support as traders remained wary that retail investors who had organised online might continue their assault on hedge fund short positions, sparking more volatility, but the crowd's focus appeared to have shifted squarely to silver.

Some worry that the wild swings in GameStop and other stocks may foreshadow a market correction.

"We need to see where equities stabilise, and if this is a short-term blip in equity markets or if it's going to have further downside," said Shinichiro Kadota, senior currency strategist at Barclays Capital in Tokyo.

"Risk sentiment is driving the dollar now."

Wrangling over the size of President Joe Biden's fiscal stimulus package and delays to vaccine rollouts also provided reasons for caution.

A group of Republican senators are urging Biden, a Democrat, to significantly downsize his proposed $1.9 trillion pandemic relief package, and have floated a $600 billion alternative.

The dollar index slipped 0.1% to 90.534 on Monday in Asia, following a gain of about half a percent last week.

The gauge has been largely range-bound in recent weeks, after bouncing from a nearly three-year low of 89.206 at the start of the year.

Investors are trying to evaluate whether an almost 7% selloff in 2020 -- driven by expectations of a global pandemic recovery amid massive fiscal spending and continued ultra-easy monetary policy -- is likely to continue.

"The U.S. dollar downtrend has been arrested for the time being," said Ray Attrill, head of forex strategy at National Australia Bank in Sydney.

"But what happens in the next one day to one week to one month is probably in the hands of risk sentiment."

The Aussie dollar added 0.2% to 76.57 U.S. cents, reversing an earlier loss on new signs of weakness in the recovery in China, a key customer for Australian commodities.

Data from the weekend showed China's factory recovery slowed in January, hobbled by a wave of coronavirus infections.

Sterling jumped 0.4% to $1.3739, approaching the 2- 1/2-year high of $1.3759 reached last week.

The euro weakened 0.1% to $1.2185, as it continued to fluctuate in a narrow range.

The dollar slipped 0.1% to 104.655 yen, further retreating from the 2-1/2-month high of 104.94 touched on Friday.

(Editing by Shri Navaratnam and Jacqueline Wong)