(Recasts with reaction to U.S. data, updates prices, adds comment, changes dateline, previous LONDON).
NEW YORK, May 9 (Reuters) - The dollar fell against most currencies on Friday as a rise in risk aversion prompted by sagging stock markets helped bolster low yielding currencies such as the yen
A larger-than-expected quarterly loss from American International Group (AIG.N: Quote, Profile, Research), the world's largest insurer by market cap, rekindled concerns about credit problems and that the end is not in sight for U.S. economic problems, particularly with crude prices again rising to a record.
This put into question comments from U.S. Treasury Secretary Henry Paulson, who on Thursday said he believed the credit crisis was "closer to the end than the beginning", and prompted investors to dump riskier assets.
Dollar gains on the back of a narrower U.S. trade deficit for March, on a record plunge in the value of imports even as average prices for imported oil surged to a record, proved fleeting. For more details, click [nN08510436].
"The market has moved to a more risk averse position overnight in the wake of the weak news out of the U.S. insurance sector that came as a surprise to many," said Dustin Reid, director G11 FX Strategy at ABN AMRO in Chicago in a research note.
Early in New York, the dollar was down roughly 0.4 percent against a basket of currencies to 73.202 .DXY.
The euro rose more than 0.2 percent to 1.5436, though off the day's high of $1.5489 <EUR=>.
The euro's gains follows those in the previous session after ECB President Jean-Claude Trichet said that inflation remained his top concern, suggesting the bank may not cut interest rates any time soon. [ID:nL08596967].
However, the euro was almost 4 percent off its record high versus the dollar set in April because of a series of soft data.
The dollar was down 0.6 percent against the yen at 103.08 yen <JPY=>.
The yen rose across the board, pushing higher-yielding currencies like sterling and the Australian and New Zealand currencies lower, which analysts said was contributing to dollar losses.
In selling these currencies, investors unwound positions where they borrow low-yielding currencies like the yen to fund purchases of higher-yielding assets.
The jump in oil prices to an all-time high also pressured the dollar lower, as it was seen worsening already weak consumer demand in the United States, one of the world's biggest energy consumers.
Sterling fell 0.3 percent against the dollar to 1.9482, off a two-month low of $1.9497 <GBP=> touched earlier in the day, with investors still selling the pound after the Bank of England kept interest rates on hold at 5 percent on Thursday.
Long-term dollar/yuan volatilities <CNY1YO=> soared on Friday, hitting their highest level since Beijing revalued its currency in July 2005. Speculation of a stronger yuan often boosts the yen, which is often used as a proxy for the illiquid Chinese currency. (Reporting by Nick Olivari, additional reporting by Naomi Tajitsu in London)