Yen holds rising momentum as stocks fall

TOKYO, May 11 (Reuters) The yen held a rising momentum against other major currencies on Friday as investors trimmed short positions on caution that a fall in U.S. stocks could filter into Asian equity markets and prompt more risk-cutting.

In New York the Dow Jones industrial average slumped over 1 percent on Thursday, falling along with other major stock indexes on disappointing retail sales and a widening trade deficit that prompted worries about the economy.

Tokyo's benchmark Nikkei share average fell 0.8 percent in early Friday trade.

Traders said falls in the euro and sterling against the dollar after key central bank meetings this week also prompted investors to sell those currencies against the yen.

''A fall in the euro looked to be a catalyst for the broad yen buybacks. But we don't know yet if this is only a part of an adjustment in yen short positions or the beginning of a new trend,'' said Takeshi Iba, head of the forex department at Calyon bank in Tokyo.

The head of a forex desk at a Japanese bank said investors will watch how Asian stocks perform on Friday to decide whether to cut positions in carry trade, in which low-yielding currencies like the yen are used to fund investment in high-yielding currencies and assets.

The euro was trading at 161.60 after falling as low as 161.28 yen earlier. The single European currency stablilised against the dollar at $1.3470 after falling to a one-month low around $1.3465.

The dollar was trading around 119.90 yen staying near a low of 119.71 yen hit earlier in the session. It marked a 2 { month high of 120.54 yen in the previous session.

Reuters JK VP0607