Yen rises on risk aversion, dollar advances

NEW YORK (Reuters) - The yen rose broadly on Tuesday by falling global stock markets, making clear progress in risk aversion as investors headed into the Japanese currency, lower performance and considered safer.

The risk appetite has been driven by an employment report better than expected in the United States on Friday that knocked the yen to its lowest in two weeks against the euro and the dollar.

But the drop in world stock markets on Tuesday led to a change in direction of the yen, while the dollar was supported after China said it was committed to buying U.S. Treasuries.

"The combination of today's transactions of risk aversion and repatriation of yen have been key drivers in the last 12 hours," said Camilla Sutton, currency strategist at Scotia Capital.

Traders said Japanese exporters were actively buying the yen market and was likely an increase in demand for Japan's currency near the end of the fiscal year in Japan on March 31.

"The feeling is we're starting to see repatriation flows to Japan at the end of the fiscal year. I think the yen will remain positive in the coming weeks as Japanese companies bring money back home," said currency strategist at RBC Adam Cole.

However, further gains for the yen may be limited by speculation that the Bank of Japan take further steps to ease monetary policy.

In early trading in New York market, the dollar / yen was trading down 0.6 percent at 89.70 yen.

The yen rose 0.9 percent against the Canadian dollar, 1.2 percent against the Swiss franc, 1.2 percent against the euro and 1.4 percent against the pound sterling.

Meanwhile, the dollar index, a calculation on the performance of the greenback against a basket of major currencies, rose 0.5 percent to 80.814.

China, which has the largest currency reserves in the world, on Tuesday renewed its commitment to the U.S. Treasury market.

The head of China's monetary regulation, Yi Gang said the country would attract more capital flows this year, partly reflecting expectations for a stronger yuan, stressing that "the U.S. Treasury market is important to us."

China's comments "should provide the dollar more support in the near future," said Sutton.

The pound was under strong pressure, coming down to a one-week low against the dollar after the credit rating agency Fitch said the British credit profile has deteriorated.

Against the dollar, the pound was off nearly 0.8 percent to $ 1.4943.

The euro fell nearly 0.6 percent against the dollar at $ 1.3545, with continued concerns about the payment of debt in some euro zone countries such as Greece and Portugal.

Fitch Ratings said Tuesday it still had a negative outlook on the rating of "AA" in Portugal and studied the details of the new austerity plan announced on Monday in Lisbon.

Greece has been a heavy burden for the euro in 2010, and the single currency has lost 5.4 percent against the dollar so far this year and 8.6 percent against the yen.

(Reporting by Nick Olivari)