The dollar hit a two-month high on a trade-weighed basis on Monday as global recession fears encouraged buying of safer assets, while the yen rose versus the euro as a G7 meeting omitted mention of the currency's strength. Both the dollar and the yen gained due to their perceived safe-haven status as data showing Japan's economy shrank sharply in the last three months of 2008 worsened fears of a deep global recession and stoked risk aversion. Finance ministers from the Group of Seven countries met in Rome at the weekend and many in the market had anticipated some rhetoric on the yen. When this failed to materialize, investors resumed buying of the Japanese currency. The yen briefly trimmed gains against the dollar, however, after Japanese finance minister Shoichi Nakagawa said he would resign if asked to after coming under fire for his behavior at a G7 news conference. The euro came close to a two-month low against the dollar, while sterling was near a two-week trough, as European equities fell 0.5 percent .FTEU3, with investors troubled by fresh worries about the banking sector. Further weighing on the euro were fresh worries about western European banks' exposure to troubles in eastern Europe as S&P rating agency warned it could cut the sovereign ratings of Ukraine due to refinancing concerns. The pound also lost ground as the G7 meeting did not mention the recent sharp fall in the value of the UK currency, as many in the market had expected. "The G7 did not mention the yen or sterling, and it is clear that the pound needs to weaken while the yen will continue to strengthen," Commerzbank currency strategist Antje Praefcke said. "Overall, recession fears have come back into the market." The dollar index .DXY rose to a two-month high of 86.871, according to Reuters data. At 0935 GMT (4:35 a.m. EST), the euro was down 0.8 percent against the U.S. currency at $1.2761 and the pound lost 1 percent to $1.4243. Against the yen, the dollar edged into positive territory, briefly hitting a session high of 92.08 yen on the Nakagawa comments. The euro remained very weak against the Japanese currency, however, losing over 1 percent to 117.28. Analysts expected trade on Monday to be relatively subdued, however, with U.S. markets closed for a public holiday.

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