LONDON (Reuters) - The yen strengthened broadly while the dollar steadied on Wednesday as deepening unease about the world economy put stock markets back under downward pressure.
Growing concern over the U.S. auto industry, which is seeking billions of dollars in government aid, kept investors away from risky positions, pushing European shares roughly 1 percent lower.
Trade in most major currencies was subdued following months of frenzied selling of risky assets as the credit crisis pushed the global economy toward recession. Extreme risk aversion has boosted the low-yielding yen and the dollar.
Analysts saw more support for those currencies as markets wait to see whether a round of aggressive interest rate cuts by major central banks and plans for fiscal stimulus will help to take some of the sting out of the recession.
"At the moment we're grappling between whether the response from global central banks will come through ... and when we will see fiscal policy announcements," said Stephen Koukoulas, strategist at TD Securities in London.
At 6:53 a.m. EST the euro was little changed at $1.2640, having traded in a narrow range all day. Against the yen, it slipped 0.3 percent to 122.10 yen.
The dollar was steady at 96.85 yen. Against a basket of currencies .DXY, it was barely moved around 87.014.
Sterling rose 0.8 percent against the dollar and the euro, shaking off minutes from this month's Bank of England policy meeting that showed unanimity on cutting interest rates by a staggering 150 basis points, and that an even bigger cut had been considered.
The higher-yielding Australian and New Zealand dollars fell around 0.7 percent against both the dollar and the yen.
AUTOMAKER WOES
Economic underperformance, financial market weakness and asset deleveraging have boosted the yen and the dollar as investors cut back on carry trades, which play on interest rate differentials, to seek safety and liquidity. Data on Tuesday showed a total net inflow of $143.4 billion to the United States in September, the largest since early 2006.
Still, some in the market say that sentiment for the U.S. currency may slump if desperate U.S. automakers are unable to secure an emergency loan from the government.
Top executives at General Motors (GM.N: Quote, Profile, Research, Stock Buzz), Ford (F.N: Quote, Profile, Research, Stock Buzz) and Chrysler CBS.UL have warned that their industry was in serious trouble, but U.S. Treasury Secretary Henry Paulson on Tuesday reiterated his opposition to diverting funds from a $700 billion financial bailout program to rescue Detroit.
Some analysts argue that bankruptcy at one of the "Big Three" U.S. automakers would touch off a cascade of failures that would cost tens of thousands of jobs and make the economic downturn even steeper.
But others warn that diverting funds of the $700 billion Troubled Asset Relief Program away from supporting the financial system could unleash even greater market and economic turmoil.
