* Yen up as China tightening move prompts risk aversion
* Euro hits 9-month low, dollar 1-month low vs yen
* Dlr also up on risk aversion; German Ifo above forecasts
(Updates prices, adds quotes; changes byline)
By Neal Armstrong
LONDON, Jan 26 (Reuters) - The yen rose sharply on Tuesday
after China's implementation of rises in some banks' reserve
ratios cut risk appetite and underlined concerns that monetary
tightening may slow the country's economic growth.
The dollar fell against the yen but rose against most other
currencies after the China news raised the prospect of further
tightening.
Sterling tumbled against the dollar after data showed
Britain only just emerged from recession at the end of 2009,
suggesting any UK monetary tightening was still a lomg way off.
China's move sparked selling in positions funded by the
low-yielding yen, which hit a nine-month high against the euro,
even as ratings agency Standard and Poor's cut its outlook on
Japanese sovereign debt to negative from stable.
China's central bank ordered banks that need to raise their
reserve ratios to implement the change on Tuesday, banking
sources said, prompting falls in equities. [].
Analysts said the change, flagged by Chinese officials last
week, underlined the market's low tolerance for risk.
"Risk aversion is in vogue right now. The market is still
quite skittish about equities, which is coming through and
helping the yen," said HSBC director of currency strategy Paul
Mackel.
By 1220 GMT, the euro was down more than 1 percent against
the Japanese currency at 126.14 <EURJPY=R>, yen off an earlier
nine-month low of 125.96 yen after Japanese deputy finance
minister Yoshihiko Noda pledged fiscal discipline following the
S&P announcement.
Finance Minister Naoto Kan echoed those comments, saying
Japan must show it has a roadmap to restore fiscal health.
[]
The yen initially trimmed gains after the S&P announcement,
which came in early European trade, but quickly recovered as
analysts shrugged off the news on the view that only a small
proportion of Japanese government bonds are held offshore.
"It would be a very different story if a lot of foreigners
held JGBs. It is another reminder that the fiscal side of the
story continues to rot in many of the developed economies and I
think that's at the forefront of investors' minds right now."
Mackel said.
The dollar was trading at 89.62 yen <JPY=>, down 0.7
percent, after falling to a one-month low at 89.39 after Noda's
remarks, having earlier traded as high as 90.55 yen.
The euro <EUR=> was down 0.5 percent versus the dollar at
$1.4075, despite a German survey showing a bigger-than-expected
rise, with the Ifo business climate at 95.8 in January, up from
94.7 in December. []
HIGHER-YIELDING
The higher-yielding Australian and New Zealand dollars fell
more than 1 percent versus the dollar and the yen.
"This could pan out to be more of a sustainable period of
risk aversion and a pause in the global recovery scenario," said
SEB currency strategist Carl Hammer in Stockholm.
"This will weigh on commodity currencies as investors move
out of pro-cyclical and into pro-defensive currencies," he said.
The yen and the U.S. dollar would be the main beneficiaries.
Sterling <GBP=D4> fell 0.75 percent against the dollar to
$1.6118 after growth data showed Britain exited recession in the
fourth quarter much more slowly than expected. []
The dollar index <.DXY> gained 0.3 percent to 78.418.
Earlier, the Bank of Japan kept interest rates unchanged at
0.1 percent as widely expected, though it predicted a slightly
slower annual pace of price falls. []
(Additional reporting by Jessica Mortimer; Editing by Nigel
Stephenson)
