FOREX-Yen gains in carry unwind as credit woes intensify

(Changes byline, updates prices, adds quotes)

By Toni Vorobyova

LONDON, Aug 1 (Reuters) - The yen jumped to a three-month high against the dollar and euro, and high-yielding currencies fell sharply on Wednesday as renewed fears of a global credit crunch led traders to scramble to unwind carry trades.

News that a U.S. mortgage lender and two Australian funds were the latest casualties and a spike in credit spreads prompted currency traders to cut exposure to riskier assets by buying back the low-yielding yen and selling higher yielding currencies like the Australian and New Zealand dollars.

Implied volatilities on currency options, a measure of how much investors are willing to pay for protection against sharp price swings, also jumped.

"We had very negative news from the subprime saga ... so this continues to create upward pressure on the Japanese yen," said Roberto Mialich, FX strategist at Unicredit Global Research in Milan.

"We also have three key signals on the carry trade. Sterling against the yen broke the 240 support, New Zealand dollar broke 90 yen and Aussie is breaking 100 yen. This could accelerate the yen rally even more."

The Australian dollar fell more than 1 percent to a two-month low of 99.52 yen, according to Reuters data AUDJPY=R. Sterling and the New Zealand dollar also hit two-month lows at 237.71 yen GBPJPY=R and 88.65 yen NZDJPY=R respectively.

The yen also set three month highs at 117.62 per U.S. dollar JPY= and 160.48 per euro EURJPY=. The Swiss franc, another low-yielding funding currency, rose to a three-month high of 1.6350 per euro EURCHF=.

Amid the turmoil, the dollar was relatively stable on a broad basis, edging up slightly against a basket of six major currencies. Analysts said that the U.S. currency could continue to benefit from heightened risk aversion, not least as U.S. investors repatriate cash after exiting risky positions.

The euro was down 0.1 percent at $1.3652 EUR= by 0941 GMT.

CREDIT VS DATA

Implied volatility on one-month euro/yen currency options rose above 10 percent EURJPY1MO= for the first time in three years on Wednesday, while one-week dollar/yen implied volatility was on track for its biggest single-day rise in over two years.

This reflected the fact that investors were rushing to get out of yen carry trades, where they'd previously sold the low-yielding currency for higher yielding units.

The fall in U.S. shares on Tuesday, after mortgage lender American Home Mortgage Investment Corp. AHM.N said it could not fund home loans and might have to liquidate assets, battered European equities on Wednesday, with the major indices down around 2 percent or more in early trade.