(Updates price, adds quotes, changes byline)
By Toni Vorobyova
LONDON, Dec 3 (Reuters) - The yen gained broadly on Monday, as risk appetite was suppressed by expectations of more bad news from the financial sector as the fallout from the U.S. subprime market woes and subsequent credit crunch spreads ever-wider.
Casualties outside the United States have so far included four Norwegian municipalities hit by losses on U.S. investments [ID:nL29914426] and German state-backed regional lender WestLB which will make a loss of up to 1 billion euros this year thanks in part to the global credit market crisis [ID:nL01184153].
Some analysts have forecast that Royal Bank of Scotland will announce up to 1.9 billion pounds ($4.13 billion) of credit-related losses this week [ID:nL30338056].
"The market is increasingly concerned... that the subprime and credit issues within the U.S. has now an increasing possibility to spill out into a global event and have a bigger impact on the global growth outlook," said Ian Stannard, senior foreign exchange strategist at BNP Paribas."
"In this environment we would expect the low yielders to pick up some support," he added.
By 1125 GMT the dollar was down 0.6 percent at 110.52 yen <JPY=> having risen on Friday to 111.23, its highest since mid-November.
The euro was down 0.4 percent at 162.35 yen <EURJPY=>.
It edged up to $1.4661, still about three cents below November's record peaks but recovering some ground on position squaring after posting its biggest weekly fall in percentage terms in over three months <EUR=>.
Last week, the dollar rose 1.5 percent against a basket of currencies .DXY -- its biggest weekly gain since June 2006 -- after the Federal Reserve cemented expectations for interest rate cuts next week and more next year. This boosted confidence on the economic outlook and ignited gains in stock markets.
Markets are fully priced for a 25 basis point Fed cut to 4.25 percent on Dec. 11 and are giving as much as a two-in-five chance of a bigger 50 basis points move FEDWATCH.
Investors were reluctant to take big risks before euro zone and British interest rate decisions this week and a closely-watched U.S. employment report which would help to determine the extent of U.S. monetary policy easing next week and in the new year.
The European Central Bank is expected to hold rates at 4.00 percent on Thursday, while retaining its overall hawkish tone in the face of target-busting inflation.
Minority expectations for a rate cut from the Bank of England this week were cooled by an unexpected rise in the November manufacturing PMI, boosting sterling <GBP=>.
Monday's calendar also features the U.S. Institute for Supply Management's manufacturing index at 1500 GMT, which is expected to fall to 50.5 in November -- teetering just above the 50 watermark between contraction and growth.
Investors are also eyeing any comments from countries in the Gulf Cooperation Council about the future of their pegs to the dollar as they start a two-day summit in Doha.
The GCC plans to ignore dollar weakness and currency reform in a statement after the summit, said an official who had seen an initial draft of the meeting's communique [ID:nL03719705].
"Keeping the pegs, given what is already priced in for these regional currencies, would likely trigger a knee-jerk dollar relief rally, though one we would see as temporary," JP Morgan said in a research note.
"A peg break, meanwhile, would further erode dollar sentiment, given fears that peg breaks would be followed by more central bank diversification."