* Stock markets in Asia fall more than 2 percent
* Euro could post biggest weekly loss since Nov 2016
* Little market reaction as U.S. lurches to government shutdown (Updates prices, adds comments)
By Hideyuki Sano
TOKYO, Feb 9 (Reuters) - The yen rose to within sight of a four-month high against the dollar on Friday on safe-haven buying as a slump in global stock markets rolled across Asia.
Many market players are closing existing positions rather than making new bets as they look to reduce risk exposure and the pick up in volatility.
The dollar fell as low as 108.50 yen, nearing its four-month low of 108.28 on Jan. 26. It later edged up to 108.99 yen, but was still down 1.1 percent for the week.
There was limited market reaction after the U.S. Congress missed a deadline to renew funding for the U.S. government to prevent a shutdown.
Missing the midnight deadline technically triggered a shutdown, but it could be brief, with the Senate expected to approve the stop gap bill and budget deal after 1 a.m. (0600 GMT) and send it to the House of Representatives.
The euro firmed 0.1 percent to $1.2254 but was down 1.6 percent for the week, putting it on track for its largest weekly decline since November 2016.
Before this week’s market mayhem, one of the most popular trades in the currency market was to buy the euro on expectations of unwinding of stimulus by the European Central Bank and to sell the yen on the view that the Bank of Japan will be the last to exit from its ultra-loose policy.
“Given the troubles in stock markets, market players will likely continue to reduce their positions for now,” said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Data last week from the U.S. financial watchdog, the Commodity Futures Trading Commission, showed speculators had record long positions in the euro while their net short position in the yen remained elevated after hitting near four-year high in November.
The yen tends to be bought in times of economic stress on the view that its current account surplus protects the currency compared to those of countries with deficits.
Sterling rose 0.2 percent to $1.3946, showing little immediate reaction to comments by Bank of England Deputy Governor Ben Broadbent, who expressed confidence that wage growth is improving in Britain.
On Thursday, sterling rose as high as $1.4067, after the Bank of England said it was likely to raise interest rates sooner and by more than it thought only three months ago.
The rapid slide in global shares and other riskier assets has also boosted buying of the Swiss franc, which strengthened to a four-month high of 1.1448 franc per euro on Thursday. The Swiss franc last stood at 1.1492 per euro.
U.S. stocks dropped around 4 percent on Thursday in another dramatic session, confirming a correction that has thrown the market’s nearly nine-year bull run off course, while Asian shares on Friday dropped 2.3 percent.
Looking ahead, investors will be focusing on U.S. consumer price index data due next Wednesday and Fed Chairman Jerome Powell’s semi-annual congressional testimony on monetary policy due on Feb. 28.
“Given all the turmoil in the markets that we’re having right now in the equity market, Powell is under the gun to do something to calm sentiment,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore.
“What tool is the most effective way to calm sentiment?... Just talk rates down again, so in other words, not come off as hawkish as what the market is playing,” Innes said, referring to U.S. bond yields. (Reporting by Hideyuki Sano in Tokyo; additional reporting by Masayuki Kitano in Singapore; Editing by Neil Fullick )