By Wanfeng Zhou NEW YORK (Reuters) - The U.S. dollar and the yen fell on Thursday as investors took a breather following the currencies' recent sharp gains, with Wall Street's steady performance helping ease the market's risk aversion. The dollar and the low-yielding yen have performed strongly in recent weeks as jittery investors shunned riskier assets like stocks and looked for safe-haven investments. Analysts expect the U.S. and Japanese currencies to stay well-bid, saying persistent wariness over the global economic outlook will likely continue to dampen investors' appetite for risk. "Today the tenor looks to be one of consolidation as equities take a breather after their recent downward lurch, and equity watching in FX-land takes a similar brief respite," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in Greenwich, Connecticut. In early New York trading, the euro rose 0.5 percent against the dollar to $1.2501, clawing back from the two-week low of $1.2389 hit earlier in the global session. Risk aversion made the dollar briefly trim its losses after U.S. government data showed initial jobless claims rose last week to 516,000, the highest level since the weeks following the September 11, 2001 attacks. The European single currency's gains were partly driven by its rise to a record high against sterling. Sterling also was down 0.6 percent against the dollar at $1.4841, having earlier fallen to a 6-1/2 year low at $1.4775. The British pound continued its slide after the Bank of England said on Wednesday the British economy would shrink sharply next year, bolstering expectations that further sharp cuts in interest rates were in the pipeline RECESSION FEARS Recession became a reality in Germany, where gross domestic product contracted by 0.5 percent in the third quarter, tipping Europe's biggest economy into recession for the first time in five years. The Organization for Economic Cooperation (OECD) cut its economic forecasts for the United States, Japan and euro zone, and said the 30-nation OECD area appeared to have entered recession. The projections were released before an emergency meeting in Washington this weekend of leaders from the Group of 20 developed and developing countries. Risk aversion was heightened on Wednesday after the U.S. Treasury backed away from using its $700 billion financial bailout to buy bad mortgages. That raised fears that banks would have trouble shoring up their balance sheets. "The global markets did not receive Paulson's changes to the TARP plan well and I continue to believe that in this troubling market environment, the U.S. dollar and Japanese yen will be the winners," said Kathy Lien, director of currency research at GFT Forex in New York. The flight from risk also battered the Australian dollar which fell to a two-week low of US$0.6348 in late New York trade the previous day, forcing the Australian central bank to intervene to support the currency early on Thursday. (Additional reporting by Tamawa Kadoya in London; Editing by Chizu Nomiyama)

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