Emerging FX-Asia crawls higher, markets still nervous

SINGAPORE, Mar 7 (Reuters) Asian currencies crawled higher against the U.S. dollar on Wednesday as stock markets continued to rebound from a steep sell-off in the past week, encouraging investors to move back into riskier assets.

But the gains were tepid as sentiment was cautious following the rise in risk aversion that has sent most regional currencies to multi-week lows in recent days.

The South Korean won rose as much as 0.23 percent to almost 945 per dollar, moving away from around 952 on Monday, its lowest in more than four months.

The Philippine peso gained as much as a fifth of a percent to 48.73 per dollar and the Indonesian rupiah rose a third of a percent to about 9,187 per dollar -- above Monday's low of 9,260, which was its weakest in more than seven months.

''There is a stabilisation in stock markets globally and in Asia, but if you look at indicators like the VIX index <.vix>, which is an indicator of risk, it is still elevated,'' said Christy Tan, currency strategist at Bank of America.

''There is still a sense of tentativeness and we will be looking at the U.S. data and the non-farm payrolls data at the end of the week.'' Worries about the U.S. economic outlook have partly triggered the global market volatility in the past week.

Asian equity markets <.msciapj> opened higher on Wednesday, extending the previous day's recovery. Tokyo's Nikkei average <.n225> opened stronger but later fell back.

Dealers said it was too early to call an end to the market volatility and were closely watching the yen.

Investors have been borrowing the low-yielding Japanese currency to invest in higher-yielding assets. But in the past week, the stock market sell-off has encouraged an unwinding of these carry trades, boosting the yen but hurting emerging market currencies in the process.

In little over a week, the yen has gone from one of Asia's poorest performing currencies against the dollar this year to one of its best performers.

The rupiah and peso, which had benefited in particular from yen carry trades, have been hit hard. Both units weakened about 1 percent in the past week.

''The market is afraid of more unwinding of yen (positions),'' said Alvin Cheng, a trader at Fortis Bank Hong Kong Branch.

''114.50-115 is critical support for dollar/yen and below there, there will be more stops to trigger.'' The yen was trading at about 116.25 per dollar , little moved from levels seen in late Asia trade on Tuesday.

Reuters SY DB0920