FOREX-Yen takes lead as investors dodge risk; Aussie pressured
* Yen broadly firmer in otherwise lacklustre session
* Risk appetite curbed by Wall Street's decline, China worries
* Aussie underperforms among major currencies
By Ian Chua
SYDNEY, March 12 (Reuters) - The yen held onto gains early on Wednesday while investors kept their distance from risk currencies such as the Australian dollar amid worries about China's economic health and following a late fall on Wall Street.
An absence of major economic data and fresh market-moving news saw traders take their cue from stock market moves, although the euro was briefly unsettled after a European Central Bank official warned the bank could still ease if needed.
ECB Vice President Vitor Constancio was also reported as saying markets had not fully taken in the point the ECB made last week when it emphasized on the slack in the euro zone economy.
His comments saw the euro cede ground against the U.S. dollar and yen. It last traded at $1.3857 and 142.67 yen , nursing losses of up to 0.4 percent. Still, the common currency was not far from a 2-1/2 year high of $1.3915 set last week.
The pullback in the euro helped the U.S. dollar index edge up to 79.788, away from a four-month trough of 79.433 plumbed last week. But the greenback struggled versus the yen, dipping to 102.97 from Tuesday's high of 103.43.
The yen tends to outperform the other major currencies in times of heightened market stress, particularly against commodity currencies such as the Australian dollar.
Further working against the Aussie were concerns about a slowdown in Chinese economic growth and a recent slide in the price of iron ore, Australia's biggest export earner.
"Focus seemed to have shifted away from Ukraine and back to China this week, with metals prices collapsing on concerns stemming from China and in turn undermining commodity sensitive G10 and EM currencies," analysts at BNP Paribas wrote in a note to clients.
The confluence of negative factors saw the Aussie slide 0.7 percent against the yen to 92.39. On the greenback, it was once again below 90 U.S. cents.
"There are a lot of questions around China's situation right now: is industrial and consumer demand fading, are we about to see further defaults across the financial spectrum, is the credit crunch about to resurface," said Evan Lucas, strategist at IG in Melbourne.
"All of these macro issues are feeding into China hysteria. What is compounding the situation is the emergence of how much copper and ore is being used as collateral."
In contrast, the New Zealand dollar was remarkably steady at $0.8472. It also barely gave way to the broadly firmer yen at 87.16.
Traders said investors were reluctant to sell the kiwi given the Reserve Bank of New Zealand (RBNZ) is widely expected to hike interest rates on Thursday.
A Reuters poll this week showed the RBNZ is set to raise rates by 25 basis points and lay out a path for a series of further increases, taking the lead among developed economies in tightening policy.
The Bank of Thailand, on the other hand, is likely to cut interest rates later in the day to help Southeast Asia's second-largest economy cope with prolonged political unrest in Bangkok.
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