* Carry trades hit by increased FX volatility, higher US yields

* Aussie suffers another big fall, EM currencies also hit

* Sterling & euro find a bit of reprieve for now

By Ian Chua

SYDNEY, Sept 10 (Reuters) - The Australian dollar nursed a second session of heavy losses early on Wednesday as investors unwound popular carry trades amid a pick-up in market volatility and further gains in U.S. Treasury yields.

Standing out from the other major currencies, the Aussie fell 0.9 percent on Tuesday, following on from Monday's 1.0 percent drop. It slid to its lowest in over five months at $0.9188 AUD=D4 , before edging back to $0.9210.

The Aussie's setback was sparked by a broad rally in the U.S. dollar. Investors seemed to be repricing the risk of an earlier U.S. interest rate hike after interpreting a Federal Reserve study as suggesting they were underestimating such a move.

"The approach of next week's FOMC meeting appears to be pushing markets to reconsider the relatively low policy risk premium still reflected in the front-end of the U.S. curve," noted analysts at BNP Paribas.

U.S. Treasury yields have moved up as a result with the two-year US2YT=RR within sight of a three-year peak of 0.590 percent set in late July. The 10-year yield US10YT=RR popped back above 2.50 percent, off a recent low of 2.30 percent.

The rally in yields helped the greenback hit a fresh six-year high just shy of 106.50 yen JPY= . It also firm against many emerging markets currencies. EMRG/FRX

The euro, though, managed to halt its slide against the greenback after slumping to a 14-month trough of $1.2859 EUR= in European trade on Tuesday. It last traded at $1.2935 EUR= .

Sterling also saw a bit of a reprieve despite ongoing worries about Scottish independence. It steadied at $1.6105 GBP=D4 , having carved out a fresh 10-month low of $1.6060.

That knocked the dollar index .DXY to 84.143 from a 14-month high of 84.519. But it is still within striking distance of its 2013 peak of 84.753, with a break there taking it to highs not seen since mid-2010.

Traders said the current theme of a firmer U.S. dollar is likely to dominate given an absence of market-moving data in Asia.

On Thursday, a policy review by New Zealand's central bank, employment data from Australia and China's inflation figures will take centre stage.

(Editing by Richard Pullin) ((ian.chua@thomsonreuters.com; +61 2 9373 1871; RM: ian.chua.thomsonreuters.com@reuters.net))

Keywords: MARKETS FOREX/