Yen down as risk aversion abates, ECB, BoE eyed

LONDON, Mar 8 (Reuters) The yen fell on Thursday, giving up initial gains against the dollar as investors tentatively took a more benign stance on risk, after more than a week of trying to curb their exposure to yield-dependent carry trades.

A slightly more stable environment was also seen leaving participants with the freedom to concentrate on rate decisions from the Bank of England at 1200 GMT and the European Central Bank at 1245 GMT.

A near 2 percent climb in the Nikkei stocks average and a firm start for European shares were supportive factors in making investors slightly more comfortable with borrowing the low-yielding yen to fund purchases of higher-return assets.

The yen had surged in the past week as doubts about the U.S.

economy and a broad stock market sell-off triggered heavy unwinding of carry trades in a bid to limit exposure to riskier positions.

Analysts said it was clear that equity markets were still influencing foreign exchange, not the other way round.

''I think equity markets are feeding into FX rather than a 'chicken and egg' situation here. The rally in equity markets in Asia is probably symptomatic of a more benign environment for risk,'' Bank of America currency strategist Kamal Sharma said.

The dollar was up half a percent on the day at 116.73 yen, pulling further away from a three-month low hit earlier this week, but still well away from a four-year high of 122.19 yen struck in January.

The euro was up 0.3 percent at 153.46, while it fell 0.1 percent against the dollar to .3151.

The yen fell across the board, with the New Zealand dollar gaining 1.5 percent on the day, aided by the Reserve Bank of New Zealand lifting rates to 7.5 percent as expected. Sterling gained half a percent to 225.53 yen.

ECB, BOE Markets have factored in a 25 basis point rate rise by the ECB to a 5-1/2-year high of 3.75 percent.

Investors will pay close attention to comments by ECB President Jean-Claude Trichet at 1330 GMT for clues about future monetary policy. Economists polled by Reuters last week gave a 75 percent chance that rates would reach 4 percent or more this year.

Citigroup strategists said in a note to clients that the ECB may remain vague about monetary policy outlook with the policy rate approaching the neutral level.

''In this sense, if the ECB drops their assessment that the ''policy remains accommodative,'' such change of rhetoric may weigh on the euro,'' it said.

The BoE is also set to announce its policy decision on Thursday, with most analysts expecting the bank to leave rates unchanged at 5.25 percent.

Further ahead, investors are awaiting a U.S. payrolls report on Friday, with any weakness in the data seen stoking expectations for the Fed to cut interest rates later this year, which analysts said may spark dollar selling against the yen.

A Reuters poll shows expectations for the addition of 100,000 new jobs in February, while other data has raised speculation that the figure could be weaker.

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