Yen rises broadly while pound tumbles on UK budget

By Vivianne Rodrigues

NEW YORK (Reuters) - The yen rose broadly on Wednesday as declines in share prices and concerns about the U.S. financial system encouraged investors to buy the currency as a haven.

A sell-off in European and U.S. stocks helped push the yen to a three-week high against the U.S. dollar. Gains in the currency accelerated as Morgan Stanley (MS.N) posted its second quarterly loss on Wednesday and slashed its dividends.

Sterling also fell sharply as UK Finance Minister Alistair Darling forecast that the economy will contract by 3.5 percent this year as public sector net borrowing jumps.

"Risk trades have continued in forex markets, mainly to the benefit of the yen," said Ashraf Laidi, a chief market analyst at CMC Markets.

He added that Morgan Stanley's bigger-than-expected losses have contributed to the rise in risk aversion, prompting investors to unwind riskier trades, where the yen is used to invest in higher-yielding assets.

In morning trading in New York, the dollar was 0.8 percent lower at 97.81 yen, a three-week low, according to Reuters data. The euro was down 0.5 percent at 127.14 yen.

The Japanese currency also rallied versus the Australian and New Zealand dollars and the Swiss franc, while the euro see-sawed against the greenback. It was last 0.5 percent up at $1.2995.

"As sterling tumbled, we've seen demand for the euro and other crosses coming up," said Meg Browne, a currency strategist at Brown Brothers Harriman in New York.