Yen rises in London

The yen strengthened on Friday and the dollar slid as a slight increase in risk aversion led to weaker European and Asian stocks, reminding investors that problems in the US housing and credit markets may sting the global economy.
In quiet trading, few investors were willing to take on fresh positions a week after liquidity in credit markets shrunk due to turmoil in the US subprime mortgage market, triggering a frantic sell-off in global markets.
Higher-yielding currencies have since recovered somewhat, but investors remain wary that subprime-related problems may continue, keeping demand low for riskier trades such as those in stocks, credit and assets in high yielders.
"It continues to be all about risk aversion, and whether it's on or off is the only story driving all (currency) pairs," said Geoff Kendrick, currency strategist at Westpac.
At 1140 GMT, the euro was up a third of a percent versus the dollar $1.3621, its highest level for 10 days. The dollar index hit its lowest level for 11 days, and the greenback dropped 0.4 percent against the yen to 115.90 yen. The dollar rebounded as much as 5 percent this week from a 14-month low.
The euro was down 0.1 percent against the yen to 157.72 yen, after recovering around 6.5 percent this week from 2007 lows. Data earlier showing eurozone private sector growth cooled in August did little to move the euro. The high-yielding New Zealand dollar stayed under selling pressure, falling 0.3 percent against the dollar to $0.7121.
Market volatility has calmed since last week, but currency moves remained at the mercy of equities. The Nikkei average fell 0.4 percent, while European stocks were also trading lower and US stock index futures were indicating a weaker open on Wall Street.
However, markets have stabilised from a week ago, helped by Bank of America's move on Wednesday to invest $2 billion in troubled US mortgage lender Countrywide Financial that soothed some credit jitters and offered some stability to global stocks.
Despite some improvements in credit and equities markets, investors remained concerned about the possible subprime spillover to the broader US economy. Countrywide Chief Executive Angelo Mozilo said on Thursday that the slumping housing market could drag the US economy into recession.
Analysts say any further bad news on the US housing market could lead to further moves away from the carry trade. "Further subprime shocks may spread fast across markets and derail the recovery of investor sentiment," said Dresdner Kleinwort in a note to clients.
Japan's top financial diplomat Naoyuki Shinohara said on Friday that the worst was over in the overall adjustment in financial markets, but added that market adjustment would continue for some time.
Economists forecast new home sales data, due at 1400 GMT, would show a drop in the seasonally adjusted annual rate of 820,000 in July from 834,000 in June. US durable goods data at 1230 GMT is forecast to show a rise in orders of 1.0 percent in July, against a 1.3- percent rise in June.