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* Citi merger talk, equity rebound prompt FX turnaround

* Sterling also rises as risk aversion cools

* Weak euro zone PMI a reminder of economic distress

* For up-to-the-minute market news, click on FXNEWS (Updates prices, adds comments, changes byline, dateline)

By Steven C. Johnson

NEW YORK, Nov 21 (Reuters) - The dollar and yen fell on Friday as global stocks rebounded and reports that banking giant Citigroup was mulling a merger with another firm helped quell market anxiety.

The more relaxed mood prompted those who had lately sold risky assets in favor of the U.S. and Japanese currencies to reverse course and move back gingerly into stocks, commodities and higher-yielding currencies such as the euro and sterling.

"It feels like we've reached a point where total fear is receding a little. There's an inkling of hope that we may be near a bottom, which is reflected in equities and high-yielding currencies today," said Boris Schlossberg, senior currency strategist at GFT Forex in New York.