NewYen and euro buoyed by risk aversion as China worries weigh on investors

The safe-haven yen and the low-yielding euro rose on Tuesday on concerns about China's economy, as investors unwound bets against the two currencies widely used to fund positions in riskier assets.

Speculators and investors have sold low-yielding currencies to buy higher-yielding ones and shares for better returns, so a worsening outlook for stock markets and the global economy tends to reverse that process.

Surveys of China's manufacturing and services reinforced worries about a sharper economic slowdown, with Japan's Nikkei ending nearly 4 per cent lower and European stocks all trading in the red.

The dollar fell 0.6 per cent to 120.50 yen, having retreated from a peak of 121.76 yen set late last week. The euro rose 1 per cent to US$1.1315, extending its recovery.

"Concerns about China are a key drive in currency markets and the PMIs were weaker and not good for overall risk sentiment," said Yujiro Goto, a currency strategist at Nomura. "The dollar was buoyed by month-end flows and that seems to have ebbed."

With China moving to clamp down on speculation in the currency forwards market, analysts expect markets to stabilise in coming days. That in turn could see the focus return to US data, including a jobs and wages report due on Friday.