Emerging FX-Asia higher, carry-trade worries cloud outlook

SINGAPORE, Jan 9 (Reuters) - Asian currencies reversed some of the previous session's losses on Tuesday, helped by a firmer Chinese yuan, but there was continuing concern that a liquidation of yen carry trades would hurt the region's high-yielders.

The South Korean won Thai baht Philippine peso and Indonesian rupiah gained a quarter of a percent each as markets weighed the various factors.

The Chinese yuan hit 7.8078 per dollar, gaining 0.15 percent from Monday's trough.

The Japanese yen was slightly weaker at around 118.50 per dollar, even though there is growing speculation that Japanese interest rates will be raised at a two-day Bank of Japan meeting starting on Jan. 17.

''I think the yen's correlation with Asia has broken down and Asia is now much more tied with yuan movements,'' said Sue Trinh, a currency strategist with RBC Capital Markets.

Gerrard Katz, head of currency trading for North Asia at Standard Chartered Bank, said there was heavy interest, particularly from players in Tokyo, to buy back the yen and that there was a lot of cross-currency trade involving yen.

Asian currencies had been propped up on Monday by the yen's resilience to broader strength in the dollar after surprisingly robust U.S. jobs data.

So even though data out of the United States had persuaded traders there was less chance of the Federal Reserve cutting rates, markets were focused on the unwinding of the yen carry trade.

''The market seems to be more focused on carry. Because so much cross business is going through, the yen rally has resulted in weakness in high-yielders,'' Katz said.

The won hit a seven-week low near 939 per dollar on Monday as a result of traders buying back the yen against the South Korean currency, as well as weakness in Korean stocks. It recovered slightly and was quoted around 936 on Tuesday.

REUTERS LL VC1025