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By Veronica Brown
LONDON, Aug 17 (Reuters) - The yen climbed again on Friday, with fears of a global credit crunch taking the low-yielding currency to a 14-month high versus the dollar as investors dumped carry trade positions.
The Japanese currency's gains were trimmed as investors took a tentative lead from European shares bucking a negative trend set in Asia earlier to rise modestly.
Currency traders have used equity markets as a barometer of risk appetite for carry trades, in which market players borrow low-yielding yen to buy higher-yielding currencies.
Investors fear that distress in financial markets -- stemming from credit jitters -- could worsen, knocking economic growth in the world's biggest economy and possibly forcing the U.S. Federal Reserve to cut interest rates.
Markets have also slashed expectations of interest rate rises elsewhere, including the euro zone.
The dollar was pushed down more than 2 percent at one point to a low of 111.62 yen <JPY=>, last seen in June 2006, while the euro dropped below key support of 150 yen for the first time this year.
By 0904 GMT, the dollar was down 0.5 percent at 113.64 yen <JPY=>, while the euro stood at 152.72 <EURJPY=>, having breeched support at 150 earlier to hit a low of 149.28.
The dollar has fallen roughly 10 percent from a 4-1/2-year high just above 124.00 yen charted in June.
The dollar is poised for its worst weekly performance since October 1998, when it plunged about 14 percent on a massive unwind of carry trades after a Russian debt default and near collapse of hedge fund Long Term Capital Management.
Implied volatility on one-week yen options, or how much the markets expect a currency pair to move over a given period, hit 30 percent, the highest since 1998 <JPYSWO=>.
"This is a risk issue and not a fundamental one -- as long as risk aversion remains high, stock markets choppy and volatility high, trade will continue like this. We'll have to get used to larger ranges and lower rates in dollar/yen and euro/yen," said Antje Praefcke, currency strategist at CBCM.
The high-yielding New Zealand dollar dived again, having dropped nearly 9 percent against the yen over the past two sessions and 5 percent versus the dollar during the same period.
Moves were exaggerated by thin trading conditions, and the Reserve Bank of Australia said on Friday it had intervened to buy the Aussie on Thursday to restore some liquidity. [ID:nSYD73401].
The New Zealand dollar fell to $0.6643 <NZD=>, hitting its lowest level since November 2006. The kiwi shed almost 5 percent to 75.96 yen <NZDJPY=R>, having hit its lowest since September last year and falling more than 20 percent from a 21-year high hit just three weeks ago.
The Australian dollar fell to $0.7770 <AUD=>, its lowest level since March.
Japanese individuals making leveraged currency bets dumped high yielders against the yen on Thursday, slashing their net long position almost in half and helping fuel the yen's surge.
Japan's top financial diplomat, Naoyuki Shinohara, stuck to the Ministry of Finance's standard line on currencies, saying he was watching the market carefully but would not comment on specific levels. [ID:nT146471]
The yen's rapid gains this week have stirred some speculation that Japan could intervene to buy dollars, having stayed out of the market since March 2004, when it ended a 35 trillion yen ($305 billion) campaign over 15 months to limit yen gains.
"We have asset liquidation with institutional investors moving to get hedges done resulting in yen buying," said Hans-Guenter Redeker, chief FX strategist at BNP Paribas.
"This increases the likelihood of Bank of Japan intervention today or Monday and they're likely to do it so everyone knows about it," he added.