FOREX-Yen gains on rise in risk aversion

                                
 (Adds comments, details, changes byline, dateline, previous
LONDON)
                                
 By Vivianne Rodrigues
                                
 NEW YORK, Feb 6 (Reuters) - The yen rose versus the dollar
and euro on Wednesday as Asian stocks posted their biggest loss
in two weeks on worries about the health of the global economy,
damping investors' appetite for riskier assets.
                                
 In such an environment, investors who have borrowed the
Japanese currency to fund purchases of higher-yielding assets
tend to buy it back to reduce risk and cover their positions.
                                
 The yen gained most against higher-yielding currencies such
as the Australian dollar, sterling and the Brazilian real.
                                
 Worries about the global economic outlook were stoked on
Tuesday by a much bigger-than-expected plunge in the U.S.
Institute for Supply Management's non-manufacturing index,
which posted its biggest monthly decline on record.
                                
 There were also signs that the slowdown will not just be
limited to the United States, as euro zone retail sales fell in
December despite Christmas shopping, while growth in the bloc's
service sector slowed almost to a standstill in January.
                                
 "The yen didn't react much to the drop in U.S. stocks
yesterday after the ISM reading, but this morning, we can see
it once again rising in the context of risk aversion," said
Camilla Sutton, currency analyst at Scotia Capital in Toronto.
                                
 Early in New York, the dollar was down a 0.2 percent at
106.58 yen <JPY=>. The euro fell 0.3 percent to 155.96 yen
<EURJPY=>. It was little changed against the dollar at $1.4625
<EUR=>.
                                
 "This is the kind of session that's dominated by risk
aversion, with concerns about global economic risk, not only in
the U.S. but also now in Europe, and equity markets suffering,"
said Carole Laulhere, currency strategist at Societe Generale
in Paris.
                                
 ECB CUTS TO COME?
                                
 The European Central Bank is widely seen leaving benchmark
euro zone interest rates at 4 percent on Thursday, leaving the
focus on ECB President Jean-Claude Trichet's post-decision news
conference.
                                
 "Any suggestion that the next move (in rates) will be lower
-- and possibly as soon as the second quarter of 2008 -- could
initiate further selling of the euro," CMC Markets said in a
research note.
                                
 Futures markets expect the ECB to cut rates by a half
percentage point by the third quarter <FEIU8> but are split on
chances of a further quarter-point easing by year-end.
                                
 Adding to downward pressure on the euro were worries about
European banks -- whose earnings season kicks off this week --
reporting more losses related to troubles in the U.S. subprime
mortgage market and the subsequent credit crunch.
                                
 Currency market activity slowed in late Asian trading as
financial markets in China, Taiwan and South Korea were closed
for the Lunar New Year holiday.
 (Additional reporting by Tony Vorobyova in London; Editing by
James Dalgleish)