* Dollar, yen rise as stocks fall on financial sector worries
* Euro slips as investors book profits on Thursday's gains
* Nikkei falls, Topix closes at lowest in 25 years
* ECB's Liikanen says all options open to fight slowdown
By Rika Otsuka
TOKYO, Feb 20 (Reuters) - The dollar and the yen rose on
Friday as worries about the financial sector and the global
economy knocked Asian stocks down, prompting investors to shun
higher-yielding currencies perceived as riskier.
The euro gave back much of the previous day's gains on the
dollar as investors in Asia continued to be concerned about
damage to banks in Europe from struggling economies in the euro
area and surrounding countries.
"Steep stock falls are fanning fears among investors,
prompting them to sell the euro and others in an attempt to avert
risk," said Jun Kato, deputy general manager of the marketing
department at Shinkin Central Bank.
Tokyo's Nikkei share average <> fell 1.9 percent to hit
its lowest close since Oct. 27, dented by bank shares that fell
on worries about their European peers.
The broad-based Topix index <> of first-section Tokyo
shares lost 1.6 percent to book its lowest close in about 25
years. []
The MSCI index of Asia-Pacific stocks outside Japan
<.MIAPJ0000PUS> tumbled 2.8 percent.
The yen pulled up from a six-week low against the dollar set
on Thursday and rose against other major currencies as traders
reduced yen short-positions.
But the Japanese currency's gains against the dollar were
capped by anxiety about a deterioration in its economy and
political turmoil, both of which have eroded the perceived
safe-haven status which has driven it higher in the past few
months.
For a graphic showing the yen's rise against the dollar and
subsequent weakening, and the rise in gold prices, click on:
https://customers.reuters.com/d/graphics/JP_YENHVN0209.gif
"The yen had risen solely on unwinding of yen carry trades,"
said Tsutomu Soma, a senior manager of foreign securities at
Okasan Securities.
"Few are willing to pick up the yen aggressively as investors
don't feel Japanese assets are attractive."
In carry trades, investors use low-yielding currencies such
as the yen to finance purchases of higher-yielding assets or
currencies elsewhere.
Steady unwinding of such risky trades in the past year helped
send the yen to a 13-year peak against the dollar and a
seven-year high versus the euro last month as recession around
the globe and market turmoil made investors skittish about risk.
Dealers said there was also some demand for dollars ahead of
a record $94 billion in auctions of U.S. Treasuries next week.
[]
The dollar inched down 0.1 percent from late U.S. trade to
94.10 yen <JPY=> but stayed within striking distance of the
six-week high of 94.47 hit on trading platform EBS.
EURO STRUGGLES
The euro jumped 1 percent on Thursday as risk appetite
improved on expectations that Germany may step in to help weaker
European economies.
But investors in Asia quickly booked profits on the rise on
Friday, sending it down 0.6 percent to $1.2592 <EUR=>.
"The euro may slide further as East European currencies, and
share prices are still around historical lows, even though
excessive pessimism has receded for the euro," said Mitsuru
Sahara, chief manager of currency derivatives trading at Bank of
Tokyo-Mitsubishi UFJ.
European Central Bank Governing Council member Erkki Liikanen
was quoted as saying in an interview published in a Finnish daily
on Friday that the central bank will not rule out any measures to
stave off the current economic downturn. []
But the market showed a muted reaction to the comments.
The euro had found a firm footing after German Finance
Minister Peer Steinbrueck indicated this week that euro zone
countries might be forced to help a fellow member state if it
encountered serious financial problems.
Investors took that as a signal that help may be on the way
for some struggling Eastern European economies. The European
Union holds a summit on March 1 which is expected to focus on
efforts to better coordinate the response to the crisis.
"There are hopes for rescue plans for struggling nations in
the region and more remarks may come out ahead of the EU summit
in March. But the euro's downturn trend is unlikely to change as
every nation is in a severe condition financially," said Yuji
Saito, head of FX sales at Societe Generale.
The euro sank to a three-month low of $1.2513 on Wednesday,
with investors concerned about euro zone banks' exposure to East
European countries.
The euro slipped 0.8 percent to 118.51 yen <EURJPY=R> after
hitting a one-month high of 120.34 yen on Thursday.
(Additional reporting by Kaori Kaneko; Editing by Michael
Watson)
