FOREX-Yen hits record low versus the euro

TOKYO, June 19 (Reuters) The yen hit a record low versus the euro and held near a 4-1/2-year trough against the dollar on Tuesday, pressured by the view that Japanese interest rate rises will be outpaced by those of other central banks.

The dollar remained weak against the euro and sterling on a slide in U.S. government bond yields, which retreated after touching five-year highs last week. The yen has fallen across the board since Bank of Japan Governor Toshihiko Fukui said last week he had no preconceived ideas about a future rate rise, dousing expectations of a hike in July.

''Carry trade is the main driver of the market,'' said a senior trader at a Japanese bank.

The euro rose to a fresh record high of 166.03 yen in early Asian trade, before trimming gains to 165.92 yen on options-related euro selling.

The dollar was steady at 123.65 yen staying near 123.76 yen, its 4-{ year high hit on Monday.

Some traders were concerned that there might be a risk-aversion move after a report that Merrill Lynch & Co. took control of $400 million of loan assets underlying a troubled hedge fund at Bear Stearns Cos. Inc., which dented U.S. stocks on Monday.

But investors stuck to risky trades, dumping the yen for currencies such as the euro, which is expected to benefit from two more rate rises this year by the European Central Bank.

''Worries over the subprime loan (and hedge fund) problems have been set to one side for now, and dollar buying against the yen looks likely to continue,'' the senior trader said.

The dollar stayed weak against the euro at $1.3415 which dipped in tandem with falling U.S. bond yields the previous session.

REUTERS KN BST0600