FOREX-Dollar rises to one-month high versus euro; yen up

* Euro pressured by S&P ratings warning on Spain

* ECB expected to cut interest rates this week

* Yen rises as traders shun risky assets on economic fears (Adds comments, details, updates prices)

By Wanfeng Zhou

NEW YORK, Jan 12 (Reuters) - The U.S. dollar rose on Monday to a one-month high against the euro, which came under pressure on expectations the European Central Bank will cut interest rates this week and after Standard & Poor's warned it could cut its ratings for Spain.

The yen was broadly stronger, hitting a three-week high versus the dollar and a one-month peak versus the euro as a grim view on the global economy and falling stock prices worldwide led investors to shun riskier assets.

The market's appetite for risk, already hurt by declines in global equity markets, took another dive after S&P said it could cut Spain's top "AAA" rating. The ratings agency's decision, which followed a similar move on Greece last week, heightened worries about the euro zone economic outlook.

The news from S&P "is making people a bit nervous in terms of the sovereign risk in Europe," said Ken Landon, global foreign exchange strategist at JPMorgan Chase in New York. "The euro/dollar came off quite sharply after that, while the yen is benefiting as the usual safe-haven currency."

In midday New York trading, the euro fell 0.7 percent against the dollar to $1.3347 EUR=, after sliding to a session low of $1.3289 earlier.

The single euro zone currency also dropped 2.1 percent to 118.71 yen EURJPY=, after hitting a low of 118.65 yen.

Markets expect the European Central Bank to cut key interest rates by 50 basis points to 2.0 percent on Thursday, according to a recent Reuters poll. Interest rate futures on Monday showed expectations for a 75 basis point cut, and some chancing a full 1 percentage point move ECBWATCH.

Data last week showed factory output collapsing across Europe, raising the prospect for a large rate cut by the ECB. Such sentiment was echoed by the managing director of the International Monetary Fund, Dominique Strauss-Kahn, who said in a media interview on Monday that Europe was "behind the curve" on taking economic stimulus measures and he expected interest rates to decrease further in Europe [ID:nLC240454].

"The fear amongst many observers is that by delaying the inevitable the ECB may exacerbate the economic slowdown in the region, creating a disastrous contraction in demand," said Boris Schlossberg, director of currency research at GFT Forex in New York.

"Irrespective of this week's decision, the market is beginning to price in 100 basis points rate cuts this year and that dynamic could weigh on euro/dollar in the near term."

RISK AVERSION RISES

Global equities kicked off the week on a down note after Friday's U.S. payrolls data showed the world's largest economy lost more than 1 million jobs in the final two months of the year. That, combined with a slew of recent dismal economic reports from the euro zone and Britain, added to fears of a deepening global economic downturn.

The grim outlook was highlighted by ECB President Jean-Claude Trichet, who said on Monday that the global economy will "slow down significantly in 2009" with the industrialized economies having negative figures. Trichet made the comments at a gathering of central bankers at the Bank for International Settlements. For more, [ID:nLC292826].

"Risk aversion is the predominant theme in the market this morning -- that's clearly evidenced in the rise of the yen across the board and the decline in higher yielding currencies," said Omer Esiner, senior market analyst at Ruesch International in Washington.

The dollar tumbled to a three-week low against the yen at 88.90 yen JPY=, according to Reuters data, and last traded down 1.6 percent at 88.92 yen.

The higher-yielding Australian dollar lost 3.1 percent versus the U.S. dollar to US$0.6811 AUD= and fell 3.8 percent against the yen AUDJPY= to 60.58 yen, weighed down by risk aversion and lower commodity prices.

Sterling was also sharply lower, dropping 2.2 percent against the dollar GBP= to $1.4837 and falling 3.3 percent against the yen at 131.96 yen GBPJPY=R (Editing by Leslie Adler)