Pound knocked to 14-year low vs yen

By Veronica Brown

LONDON (Reuters) - Sterling hit its lowest in almost 14 years against the yen on Tuesday as worries about global economic health sparked fresh waves of risk aversion, pressuring the pound as investors favoured lower yielding units.

The pound also reeled against the dollar and euro as fears of steep losses at corporate bellwethers from Citigroup (C.N) to Sony (6758.T) slapped share prices down, signalling the extent of the global economic slowdown and bolstering less risky assets such as government debt.

Country risk was also on the radar with Greece, Ireland, Spain and New Zealand all having being put on credit watch for possible rating downgrades. Intra-euro zone government bond spreads blew out to their widest since the euro's launch as investors piled into the relative safety of German Bunds.

"We had the unbridled optimism last week and we're now back to a dose of realistic pessimism for markets," said Jeremy Stretch, market strategist at Rabobank in London.

"Sterling is going to struggle if you buy into the risk aversion story," he added. Risk aversion saw sterling fall to a low of 129.74 yen, last seen in April 1995.

The severity of Britain's crisis was stark. The Office for National Statistics said the goods trade deficit grew to 8.330 billion pounds in November from October's downwardly revised 7.631 billion, the biggest since records began in 1697.

"The worse-than-expected trade figures added to sterling's negative sentiment," said Audrey Childe Freeman, currency strategist at Brown Brothers Harriman.

"The data suggest the weakness in sterling is not translating into improving the UK trade position ... and external demand will continue to provide a negative contribution to growth."