(Corrects to 'low' in paragraph 3)
* Yen rises broadly on heightened risk aversion, weak shares
* Dollar hits 3-week low vs yen of 97.62 yen <JPY=>
* Sterling tumbles on grim UK govt forecasts in budget
* Euro steady vs dollar; US banking sector concerns linger
(Recasts, adds quotes, changes byline)
By Jessica Mortimer
LONDON, April 22 (Reuters) - The yen rose broadly on
Wednesday as falls in share prices encouraged investors to pare
back exposure to risk on Wednesday, while sterling fell sharply
as the UK government issued grim forecasts in its annual budget.
Falls in European equities <> and U.S. stock futures
<SPc1> <DJc1> helped stoke buying of the Japanese currency,
which typically benefits in times of heightened risk aversion.
This pushed the dollar to a 3-week low against the yen,
while the euro was close to a one-month high, and weighed on
higher yielding currencies such as the Australian and New
Zealand dollars.
Sterling also fell sharply as UK Finance Minister Alistair
Darling forecast that the economy will contract by 3.5 this year
as public sector net borrowing jumps to 175 billion pounds, or
some 12.4 percent of gross domestic product.
For highlights of the UK budget click on []
"Risk trades have continued in forex markets, mainly to the
benefit of the yen," CMC Markets chief market analyst Ashraf
Laidi said.
He added that risk aversion played out mostly in terms of
strength in the yen rather than the dollar, however, with the
euro steady against the U.S. currency.
At 1222 GMT, the dollar fell 1 percent against the yen to
hit a three-week low of 97.62 yen <JPY=>, while the euro also
lost 1 percent to 126.53 yen <JPY=>. The euro was steady against
the dollar at $1.2940 <EUR=>.
Among higher risk currencies, the Australian dollar lost 1.1
percent against its U.S. counterpart to $0.7030 <AUD=> while the
New Zealand dollar dropped by 1.1 percent to $0.5555 <NZD=>.
Analysts said uncertainty over the health of the U.S.
banking sector and ongoing concerns about the global economic
slowdown have prompted investors unwound riskier trades, where
the yen is used to invest in relatively higher yielding assets.
CMC's Laidi added that comments from Japan's Ministry of
Finance earlier that currencies would not be a major issue at a
meeting of Group of Seven finance ministers this week "may also
have emboldened short term positions in the yen". For story
click on [].
STERLING FALLS
Sterling tumbled 1.1 percent against the dollar to $1.4511
<GBP=>, while the euro rose by 1.2 percent versus the pound to
89.20 pence <EURGBP=> as the UK's Darling announced details of
the UK budget.
Analysts expressed concern about the impact on the economy
further out of such a large jump in government borrowing.
Investec economist Philip Shaw said forecasts for net
borrowing of 5.5 percent of GDP in 2013/14 "is an extremely high
level of government borrowing over the medium term". For more
analyst views click on [].
The market is awaiting the outcome of the U.S. authorities'
stress tests on banks. U.S. officials are expected to release
details of the underlying assumptions of the tests on Friday,
but actual results are not expected until May 4.
Treasury Secretary Timothy Geithner said on Tuesday that
most U.S. banks have enough capital to keep lending but a pile
of bad debts is fostering doubts about their health and slowing
a recovery.
An International Monetary Fund report warned that global
write-downs by banks and other financial institutions could
reach $4.1 trillion as institutions seek to clean up their
balance sheets. [].
Meanwhile, sentiment towards the euro remained shaky due to
uncertainty over what the European Central Bank will decide at
its next policy meeting in May.
The ECB is seen cutting interest rates to 1.0 percent from
1.25 percent in May but it is unclear whether it will follow the
Federal Reserve and other central banks and create money via
other means such as buying corporate or sovereign debt.
(Reporting by Jessica Mortimer; additional reporting by
Naomi Tajitsu; editing by Victoria Main)
