(Adds details, updates prices, changes byline, dateline;
previous LONDON)
* Yen rises broadly as risk aversion increases
* Sterling on the defensive on bleak UK mortgage news
* Euro slips on weak euro-zone PMI data
By Gertrude Chavez-Dreyfuss
NEW YORK, June 2 (Reuters) - The yen gained across the
board while sterling fell on Monday as investors' risk appetite
soured following news of troubles at Britain's largest
buy-to-let mortgage lender.
Earlier in the session, Bradford & Bingley <BB.L> issued a
stark warning on the state of the UK mortgage market and
slashed the price of its emergency rights issue to secure a
private equity lifeline, hitting bank shares across Europe.
In the bleakest outlook yet from a British lender, B&B also
said it had tumbled to a loss for the first four months of the
year. The news came as official data showed approvals for new
home loans in Britain hit a record low in April
[].
"Risk aversion is back in focus because of bad news out of
the UK and therefore we have seen the yen strengthen broadly
and sterling weaken," said Matthew Strauss, senior currency
strategist, at RBC Capital Markets in Toronto.
The yen tends to get bid in times of heightened risk
aversion as investors unwind trades financed by borrowing the
Japanese currency at low interest rates.
In early New York trading, the dollar fell 0.8 percent
against the yen <JPY=> to 104.70, while the euro slid more than
1 percent to 162.61 <EURJPY=>, reflecting tempered risk
appetite as European stocks faltered <>, led by losses in
bank shares.
U.S. stock futures also fell, with financial stocks under
pressure.
Sterling fell more than 1 percent to $1.9609, hitting
one-week lows of $1.9597 <GBP=> after poor UK mortgage news and
manufacturing PMI data. The euro also posted sharp gains versus
sterling, rising 0.8 percent to 79.05 pence <EURGBP=>.
"The market's nervousness obviously stems from the Northern
Rock debacle and the perceived risk that the ongoing
deterioration in the housing market will be a bigger problem
for UK lenders and the financial system more broadly," said
HSBC Bank USA in a research note.
Northern Rock, which used to be the UK's largest mortgage
lender, last year fell victim to the credit market squeeze
sparked by defaults on U.S. subprime housing loans.
The euro eased as euro-zone manufacturing activity hit its
lowest in almost three years. The euro zone's Purchasing
Managers' Index of manufacturing in May slipped to 50.6, its
lowest since August 2005 [], underlining slowing
growth in the region even as inflation surges.
The euro was 0.3 percent weaker versus the dollar at
$1.5499 <EUR=>, having struck a two-week low of $1.5460 on
Friday.
Despite signs of economic weakness, the European Central
Bank has stuck to its position of ensuring inflation does not
get out of hand, which suggests it will be wary of cutting
interest rates from the current 4 percent to help spur growth.
The dollar continued to garner broad support, having
rebounded on the prospect of eventual U.S. monetary tightening
from the current 2 percent to deal with inflation.
The euro has retreated some 3 percent from a record high of
$1.6018 hit in April, according to Reuters data, with interest
rate speculation helping the U.S. currency score back-to-back
monthly gains against the single currency in April and May for
the first time since early 2007.
U.S. Treasury Secretary Henry Paulson on Monday defended
the dollar's status as the world's reserve currency and said
its recent decline was only a small factor behind a surge in
oil prices [].
Markets are awaiting the release of the U.S. May
manufacturing survey from the Institute for Supply Management
and April construction spending later in the session. The
market expects a small decline in the ISM index to 48.5 from
48.6 and a 0.6 fall in construction spending after a 1.1
contraction decline in March.
(Additional reporting by Veronica Brown; Editing by Neil
Stempleman)
