FOREX-Yen dips; euro, pound rise vs dlr as risk aversion ebbs

                                
 * Euro gains 0.6 pct vs yen <EURJPY=R> as stocks rise
                                
 * Euro, pound rise vs dlr; Stg up 0.5 pct, euro up 0.1 pct
                                
 * European stocks rise as Barclays, ING drive rally in banks
                                
 * Global growth, banking sector concerns remain
                                
 
                                
 (Adds quote, updates prices, changes byline)
                                
 By Jessica Mortimer
                                
 LONDON, Jan 26 (Reuters) - The yen dipped on Monday, while
the euro and sterling edged higher against the dollar as a rally
in bank shares bolstered European equities, helping to take the
edge off investors' heightened aversion towards riskier assets.
                                
 Equity market gains weighed on the Japanese yen -- perceived
as a safe haven currency -- although concerns over the global
downturn and the outlook for the troubled banking sector
lingered.
                                
 The pound and the euro got a slight reprieve after taking a
beating last week, when sterling fell to 23-year lows against
the dollar and the euro hit six-week lows against the dollar.
                                
 European shares were up 0.7 percent, powered by Dutch
financial group ING <ING.AS>, which said it would tap into
government guarantees, and Barclays Plc <BARC.L> which said it
did not need fresh funding [.EU].
                                
 "The movements are not huge, but the euro is doing a bit
better against the yen, which has probably been helped by a
rebound in stocks," Bank of America G10 currency strategist
David Powell said.
                                
 "But any increase in sentiment towards the banking sector
could be temporary", he warned.
                                
 At 1303 GMT, the euro rose 0.6 percent against the yen to
116.05 yen <EURJPY=R>, while the dollar gained 0.4 percent to
89.19 yen <JPY=>. The single currency hit a seven-year trough
just above 112 yen last week.
                                
 The euro edged up 0.1 against the dollar at $1.3006 <EUR=>,
well above an earlier session low of $1.2862.
                                
 Sterling gained 0.5 percent against the dollar <GBP=D4> to
$1.3877, also comfortably above an earlier session low of
$1.3548. It also gained around half a percent against the euro
to 93.52 pence <EURGBP=D4>.
                                
 
                                
 POUND GAINS
 The pound benefitted as Barclays helped to ease the recent
dire worries about the UK banking sector by reassuring investors
that it would report healthy profit and not need to seek capital
from investors or the state [nLQ148329].
                                
 But the outlook for the UK currency was still bleak and it
is remains not too far above the 23-year low of $1.3500 hit last
week. 
                                
 UK financial sector concerns linger, while investors fret
about how the UK will fund substantial bailout packages and
about the prospect of more interest rate cuts from their current
1.50 percent.
                                
 Earlier, sterling was pressured after Bank of England
Monetary Policy Committee member David Blanchflower was quoted
on Sunday as saying British interest rates still had a way to go
if they were to follow the United States. [ID:nLO542246]
                                
 Key U.S. rates are now targeted in a range of zero to 0.25
percent. Similar sharp falls in UK rates will leave the BoE
resorting to unconventional monetary policy measures, such as
buying assets to boost the supply of money.
                                
 "The prospect of lower UK rates is one of the key drivers
helping to undermine the pound," said Lee Hardman, currency
economist at Bank of Tokyo-Mitsubishi UFJ.
                                
 In contrast, euro zone policymakers seemed averse to taking
further monetary easing steps.
                                
 European Central Bank governing council member Yves Mersch
said he would be unwilling to see the bank's main interest rate
fall much lower than the current 2 percent and it would be
difficult to take so-called quantitative easing steps. He was
speaking in an interview with the Financial Times published on
Monday. [ID:nLQ61697].
                                
 Speaking on Monday, ECB executive board member Jose Manuel
Gonzalez-Paramo also hinted that the region's interest rates
would not fall too far, saying deflation in the euro zone is "a
very far off risk" and not on the ECB's radar [ID:nLQ262016].
                                
 On a quiet day for European data, investors will be looking
ahead to the release of U.S. existing home sales data at 1500
GMT.
                                
 Focus for this week, however, will centre on the United
States Federal Reserve's two-day policy meeting ending Wednesday
and on any further details on measures by the Obama
administration to bolster the banking system.
                                
 (Additional reporting by Tamawa Desai; Editing by Ron Askew)