* Dollar falls vs yen, euro as risk appetite recedes
* Euro on track for 1.4 pct fall vs dollar on week
* Greek deficit, Chinese tightening still weigh on market
(Adds details, updates prices)
By Michael O'Boyle and Vivianne Rodrigues
NEW YORK, Jan 22 (Reuters) - The dollar fell against the
euro and yen on Friday as investors exited risky trades,
unnerved by U.S. President Barack Obama's proposals to limit
risk-taking by U.S. banks.
The yen, which often benefits when investors grow nervous,
touched a five-week high against the dollar and hit a
nine-month peak against the euro, while global stock markets
slumped for a second day. The euro rebounded from Thursday's
near six-month low against the greenback.
"Since there is no U.S. data today, the market is still
focused on the impact of the proposed banking legislation,"
said Kathy Lien, director of currency research at GFT in New
York. "Whenever there is political uncertainty, traders always
sell first and ask questions later."
The dollar hit a session low of 89.79 yen <JPY=>, according
to Reuters data, and was last at 89.88 yen, down 0.6 percent on
the day.
The euro hit a session low against the yen of 126.58 yen
before rebounding to 127.33 yen <EURJPY=>, little changed. It
also rose 0.5 percent to $1.4162 <EUR=> after nearing a
six-month low of $1.4028 a day ago.
The euro has been under steady pressure this year as
investors have worried about euro zone member Greece's ability
to rein in its fiscal deficit. The currency was down about 1.4
percent against the dollar this week.
French President Nicolas Sarkozy repeated his demand for
more order in currency markets, saying it was unacceptable that
the euro was bearing the brunt of foreign exchange imbalances.
For details, see []
With uncertainty about the impact of Obama's bank
proposals, investors sought to go into the weekend squaring out
dollar positions after the U.S. currency's recent strong gains,
analysts said.
The proposals, which require congressional approval, would
prevent banks or financial institutions that own banks from
investing in, owning or sponsoring a hedge fund or private
equity fund. []
"Although the impact of Obama's proposed banking regulation
changes is clear enough on equities, currency markets seem to
see the implications as ambiguous," said Adam Cole, global head
of currency strategy at RBC Capital Markets.
On Thursday, U.S. stocks suffered their worst one-day
percentage drop since October following Obama's announcement of
tough restrictions that would squeeze banks' profits.
U.S. stock indices fell as the VIX <.VIX>, viewed as gauge
of investor apprehension, jumped over 6 percent.
Obama's proposals were the latest setback in a market
hampered by fiscal concerns in some euro zone economies and by
speculation China would take more steps to withdraw liquidity
to stem inflation.
"Taken together the three issues add considerably to
uncertainty about prospects for the global recovery, with the
possibility of a serious restriction of Chinese credit the most
important factor," Barclays analysts said in a note.
(Additional reporting by Steven C. Johnson in New York and
Tamawa Desai in London)
(Reporting by Vivianne Rodrigues; Editing by Dan Grebler)
