Yen climbs on fears about deepening credit crisis

TOKYO, Oct 8 - The safe-haven yen edged up against the euro and other major currencies on Wednesday as investors feared more global financial and economic damage from the deepening credit crisis.

Federal Reserve Chairman Ben Bernanke's signal that an interest rate cut is coming shortly, along with a new Fed facility to help unfreeze money markets, did little to reassure market players fretting about more trouble ahead.

Investors have dumped stocks and unwound long-standing carry trades favouring higher-yielding currencies, pummeling the euro and Australian dollar and boosting the low-yielding yen used as a source of cheap funds for carry trades.

The yen and Swiss franc also tend to serve as a haven for currency investors in times of financial market turmoil.

Asian shares took a hit from the ongoing slide on Wall Street, with Japan's Nikkei average dropping 3.4 percent and hitting a five-year low. On Tuesday the S&P 500 shed nearly 6 percent on Tuesday and has tumbled almost 20 percent in just seven trading days.

Even as Bernanke confirmed that the Fed is prepared to cut rates, the dollar gained against most currencies as banks have scrambled to pick up the U.S. currency for their funding needs due to the severe strains plaguing the money market.

Since the demise of Lehman Brothers, financial institutions have all but stopped lending to each other except on a day-to-day basis because they fear another bankruptcy.

Investors have been looking for major central banks and policymakers to take coordinated steps to stem the crisis, either interest rate cuts or some other action such as guaranteeing interbank lending.

The failure of European leaders to come up with a unified response as the crisis has claimed European banks has spooked investors and undermined the euro.

Currency strategists at BNP Paribas said that with the Group of Seven financial powers set to meet on the sides of the annual meeting of the International Monetary Fund and World Bank, "coordinated action is moving to the front burners."

The Reserve Bank of Australia's big 100 basis point cut in rates the previous day had stoked hopes for coordinated rate cuts and even gave a boost to the Aussie dollar despite such a large chop in the yield for the currency.

The dollar was little changed from U.S. trade at 101.45 yen holding above a six-month low of 100.22 yen struck on trading platform EBS earlier in the week.

The euro dipped 0.1 percent to $1.3580 holding above a 13-month low of $1.3444 struck on Monday.

The single currency dipped 0.1 percent to 137.85 yen holding above a three-year low of 135.05 yen also hit this week.

Both the Australian and New Zealand dollars fell about 1 percent against the yen.