FOREX-Yen gains, risk aversion hits stocks worldwide

NEW YORK, Dec 3 (Reuters) - The yen extended gains across the board on Wednesday, reflecting heightened risk aversion as investors cut back on investments in higher-yielding assets while stocks fell around the world.

Currency moves were subdued ahead of interest rate decisions on Thursday by central banks in the euro zone, Britain, New Zealand and Sweden, with expectations high of aggressive monetary policy easing to counter the threat of deflation.

Investors have flocked to the dollar and the yen on the view that the ECB, BoE and other central banks have more scope to cut rates than the Bank of Japan and the Federal Reserve, whose rates are already low.

"We speculate that the market is particularly nervous over the ECB decision tomorrow," said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto in a note to clients. "The discrepancy between what many believe the ECB should do, and what it is expected to do, has produced plenty of discord between economists over the outcome."

While the consensus ECB call is for a 50 basis point cut to 2.75 percent, there are many economists expecting a 75 basis point cut, and a not-insignificant number thinking the ECB could deliver a 100 basis point cut, Malyon said.

In early New York trade, the dollar slid 0.6 percent to 92.83 yen JPY=, while the euro fell 1.3 percent to 117.12 yen EURJPY=.

The low-yielding Japanese currency, which hovered near a five-week high against the dollar, drew strength from tumbling share prices as European equities fell 1.6 percent .FTEU3, while U.S stock futures .DJc1 slated a lower market open.

Investors continued to unwind carry trades, where the yen was used to fund purchases of higher-yielding assets. Analysts said the yen would take strength from share prices -- often seen as a barometer of investors' risk appetite -- which suggest that risk aversion remains high.

The euro EUR= fell 0.6 percent to $1.2626, struggling after data showed further deterioration in the euro zone services sector.

Earlier in the day, bleak PMI services data for the euro zone pushed the euro to a session low against the dollar and the yen, as the figure provided further evidence that the single currency region is grappling with a recession. [nL3261302].