FOREX-Dollar up on euro zone woes; yen hits 15-year high

* Euro takes a hit as Europe banking concerns rekindled

* Yen hits 15-year high as traders watch for intervention

* Swiss franc hits record versus euro (Adds quote, updates prices, changes byline)

By Wanfeng Zhou

NEW YORK, Sept 7 (Reuters) - The U.S. dollar rose against most major currencies but fell to a 15-year trough versus the yen on Tuesday as renewed concern about the health of European banks sparked aversion to risk.

World stocks retreated and the euro weakened broadly after a Wall Street Journal report said that recent stress tests of the European banking sector underestimated some lenders' holdings of potentially risky government debt.

The yen was also bolstered after comments by Bank of Japan Governor Masaaki Shirakawa increased speculation that Japan was not preparing to act to stem the yen's strength in the near term.

"Equity is the quickest reflection of overall market confidence and I will say that the market confidence remains low," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "So you are seeing a renewed, somewhat flight to quality and the U.S. dollar is bid across the board."

In early afternoon trading, the euro EUR= slipped 1.2 percent to $1.2714. It had earlier hit a session low of $1.2698, according to electronic trading platform EBS, well off a three-week high of $1.2920 hit on EBS on Monday EUR=EBS.

Worries about the banking sector saw yield spreads between peripheral euro zone government bonds and their German counterparts -- considered the safest in the euro zone -- widen, with Portuguese and Irish spreads in focus.

The euro was also weighed by comments from Germany's banking association on Monday that the country's 10 biggest banks may need 105 billion euros of additional capital under revamped rules. A fall in German manufacturing orders in July added to the euro's woes.[ID:nLDE6850Q9][ID:nBAF004244].

Traders said the focus was turning to significant option expiries on Thursday, when an estimated 1 billion euros are set to roll off at $1.2600.

A spike in risk aversion boosted the Swiss franc, pushing the euro EURCHF= 1.3 percent lower to 1.2860 francs. The pair hit a record low of 1.2843 francs, according to Reuters data. The dollar CHF= was down slightly at 1.0115 francs.

US DOLLAR BELOW 84 YEN

Against the yen, the dollar hit a 15-year low of 83.52 yen, according to Reuters data JPY= and last traded at 83.68 yen, down 0.6 percent. The euro fell 1.8 percent against the yen to 106.43 yen EURJPY=.

The Bank of Japan's Shirakawa said monetary authorities could not control forex rates, increasing speculation that Japan was not preparing to act to stem the yen's strength at the moment. [ID:nTOE68606B]

Shirakawa "has essentially ruled out intervention in the near term," CitiFXWire analysts said in a client note, adding that the statement helped to encourage yen bulls.

Shirakawa's comments followed the BOJ's decision to hold off from additional monetary policy easing. [ID:nTOE68602K] However, Japanese Finance Minister Yoshihiko Noda on Tuesday said the government would take firm action on currencies when needed, saying recent moves were clearly one-sided. [ID:nTKX006976]

Ashraf Laidi, chief market strategist at CMC Markets in London said expectations that incumbent Prime Minister Naoto Kan will stave off a leadership challenge by rival Ichiro Ozawa also helped lift the yen [ID:nTOE68606H].

"The latter has shown vocal support in favour of yen-supressing intervention," he said.

The Australian dollar AUD= was down 0.5 percent at $0.9128 as the ruling Labor Party secured enough numbers to form a minority government [ID:nSGE6850I3]. Labor's return to power has made some investors cautious, with the government expected to move forward with a tax on mining company profits. (Additional reporting by Nick Olivari; Editing by Chizu Nomiyama)