* Dollar hits 2-year high vs euro, currency basket

* Traders liquidate high-risk positions, also boosting yen

* Sterling battered after BoE King's recession comments

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By Naomi Tajitsu

LONDON, Oct 22 (Reuters) - The dollar soared to a two-year high against the euro and a basket of currencies on Wednesday as a worsening global economic outlook prompted more investors to liquidate risky assets in favour of the U.S. currency.

The yen climbed to a 4-1/2-year high against the euro, with the low-yielding Japanese currency also benefitting from the exodus from risky assets after being dogged by carry trades for for years.

Analysts said that speculators who had built up investments in high-risk assets, such as those in currencies benefitting from higher yields, have been dumping those positions as already weakening global economies are expected to take a further hit as nations try to rescue their banking sectors.

This drove the euro EUR= down as far as $1.2740 according to electronic trading system EBS, its lowest since November 2006, while sterling dropped roughly 3 percent to around $1.62, its weakest in five years.