The yen slipped broadly on Friday after U.S. stocks rose on optimism about a fresh stimulus package, and its retreat against the euro helped the single currency extend a rebound from a five-week low versus the dollar. Investors' risk appetite recovered slightly after Wall Street stocks snapped a six-day losing streak, buoyed by hopes that the U.S. government would provide fresh capital to crisis-hit banks, including Bank of America. Emerging stability in regional equity markets, with Tokyo shares recovering from a one-month low touched the previous day, further eased investor aversion and supported higher-yielding currencies such as the Australian and New Zealand dollars. "The market focus at least for the next week is how solid the stock market recovery this time is. That means the yen may move defensively against the dollar and the euro meanwhile," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank. The U.S. Senate rejected a bid to block the release of the second half of a $700 billion bailout program, handing an early political victory to President-elect Barack Obama, who will be sworn in next Tuesday. Earlier, Democratic leaders in the House of Representatives unveiled an $825 billion tax cut and spending bills they hope will help Obama reverse the economic slump, offsetting fears of soaring losses at the top three U.S. banks. The political moves along with a recovery in U.S. equity markets improved market sentiment and prompted investors to cut safety bids in the yen, traders said. "Some market players are thinking of closing their broad yen-buying positions before Obama is sworn in as U.S. president next week," said a trader at a Japanese bank. The euro climbed 1.25 percent from late New York trade to 119.35 yen, bouncing further from a six-week low of 116.24 yen touched the previous day on trading platform EBS. The euro rose 0.8 percent to $1.3220, above a five-week low of $1.3025 hit on Thursday after the European Central Bank cut rates by a half percentage point to 2 percent, matching a record low rate. The dollar gained 0.5 percent to 90.30 yen. The New Zealand dollar rose 1.8 percent against the yen to 49.10 yen, gaining ground from lows of more than 7 years near 47 yen struck the previous day. STILL EDGY ON EURO Traders said the euro may hold firm near-term on further short-covering ahead of the U.S. long weekend. It struck a five-week low versus the dollar after the ECB cut rates and left the door open to further borrowing cost reductions in the months ahead. But they said it may struggle to regain solid ground as investors worry that the ECB is moving too slowly in lowering rates to combat the rapid deterioration in the euro zone economy. ECB President Jean-Claude Trichet said there is more room for interest rate cuts but that the central bank was not thinking of adopting a zero rate policy, cementing market views that the ECB will probably hold rates steady in February before re-assessing in March. Trichet's comments were in an interview with Japanese public broadcaster NHK recorded after Thursday's board meeting and broadcast on Friday.

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