LONDON, Mar 1 The yen rose against the dollar and the euro on Thursday, as stock market d

LONDON, Mar 1 (Reuters) The yen rose against the dollar and the euro on Thursday, as stock market declines across Asia made investors edgy about a further slide in risky assets.

Falls in global stock markets, a rise in the price of oil, growing tensions over Iran's nuclear programme and a run of weaker than expected U.S. data have all contributed to a sharp fall in risk appetite in recent sessions.

As a result, investors have become less comfortable about borrowing cheaply in yen or Swiss francs to fund investments in higher yielding units such as the dollar, euro or sterling.

The unwinding of such carry trades drove the low-yielding Japanese currency up for its largest one-day gain in 14 months against the dollar earlier this week.

''We think that the yen is probably due for another one or two days of strength,'' said Teis Knuthsen, FX and fixed income strategist at Danske Bank in Copenhagen.

''U.S. economic numbers have been clearly weaker than most people had thought....another issue is the political side, the Iran story just will not go away,'' he added.

By 0820 GMT, the dollar had slipped 0.2 percent to 118.20 yen. On Tuesday, the dollar fell below 117.50 yen to its weakest since Dec 15. The euro fell to 156.42 yen.

Stock indices in Japan, Taiwan and Shanghai fell on Thursday, building on Tuesday's sharp sell off, although European equities opened broadly flat.

Japan's vice finance minister Hideto Fujii said on Thursday that he will watch stock market moves closely as one kind of economic indicator. He added that the economy continues to be supported by prolonged strength in corporate sector.

DATA WATCH The single European currency was flat $1.3230, off the two-month high around $1.3260 struck on Tuesday.

The euro zone manufacturing PMI at 0900 GMT is forecast to show a slight pick up in the sector's growth rate in February.

''A strong figure at least can make the market reconsider the most recent moves at the short end of the curve as the scenario of the European Central Bank moving to 4 percent was under strain over the previous days,'' KBS said in a research note.

Markets are fully priced for an ECB hike to 3.75 percent next week and most expect more tightening later this year.

A comparable survey on the U.S. manufacturing sector, from the Institute for Supply Management, is due at 1500 GMT. The A series of soft data has stoked more worries about a sharp economic slowdown and the Fed needing to cut interest rates from the current 5.25 percent later in the year, which would undermine the dollar's yield advantage.

The ISM is forecast to rise to 50.0 versus from 49.3 in January, which would still show a stagnant factory sector.

Data on U.S. personal income and spending for January will be released at 1330 GMT. Spending is expected to rise 0.4 percent compared with the previous month, slowing from a 0.7 percent increase in December.

The core PCE, the Fed's favoured inflation gauge, is seen rising 0.2 percent in January from the previous month.

The latest weekly jobless claims are also due.

''To date the outlook for the U.S. economy has held together largely because the softness in housing and perhaps now in manufacturing and capital expenditure has not hit employment and incomes. Obviously any evidence thatemployment growth is slowing will not be taken well,'' ABN AMRO said in a client note.

Reuters CS DS1515