FOREX-Dollar up vs euro on ECB view; risk aversion lifts yen

* US dollar rises to one-month high vs euro

* Euro pressured by S&P ratings warning on Spain, ECB view

* Yen rises as traders shun risky assets on economic fears (Updates prices, adds comment, changes byline)

By Steven C. Johnson

NEW YORK, Jan 12 (Reuters) - The dollar hit a one-month peak against the euro on Monday as investors braced for the European Central Bank to cut interest rates this week and Standard & Poor's announced a ratings warning for Spain.

The yen was stronger, hitting a three-week high against the dollar and a one-month peak against the euro as fear of a worsening global slump led investors to shun risk in favor of the low-risk and low-yield returns of yen-denominated assets.

Investor risk appetite, already dulled by declines in world equity markets, took another dive after S&P's outlook revision on Spain, which boosted worries about the euro zone 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. "Euro/dollar came off quite sharply after that, while the yen is benefiting as the usual safe-haven currency."

In late New York trading, the euro EUR= edged down 0.4 percent at 1.3380 after sliding to a session low of $1.3289 earlier. It also fell 1.6 percent to 119.23 yen EURJPY=, after hitting a low of 118.65 yen.

The dollar fell 1.3 percent to 89.10 yen JPY=, just above a three-week low and near December's 13-1/2-year trough just above 87 yen.

Global stock markets fell, with the U.S. benchmark S&P 500 .SPX on Monday capping its worst two-day stretch in a month.

"The yen is influenced by the external environment and the risk trade," said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. "It's mostly safe-haven flows."

The high-yield Australian dollar fell 3.3 percent to $0.6797 AUD= and 4.5 percent to 60.64 yen AUDJPY=, weighed down by risk aversion and lower commodity prices. Sterling was sharply lower, dropping 2.3 percent against the dollar GBP= to $1.4824.

WAITING FOR THE ECB

Markets expect the European Central Bank to cut key interest rates by 50 basis points to 2 percent on Thursday, according to a recent Reuters poll. Interest rate futures on Monday showed investors see a 75 basis point cut, though some were bracing for a full percentage point move. ECBWATCH

Data last week showed factory output collapsing across Europe, raising the prospect for a large rate cut by the ECB.

Dominique Strauss-Kahn, managing director of the International Monetary Fund, also 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. For details, see [ID:nLC240454]

"The fear among 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 of rate cuts this year and that dynamic could weigh on euro/dollar in the near term." (Additional reporting by Wanfeng Zhou; Editing by Gary Crosse)