(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, Aug 30 (Reuters) - The yen rose broadly on Thursday, recovering from the previous day's sharp drop, as the spotlight swung back to the U.S. subprime mortgage meltdown and investors remained cautious about risky carry trades.
The yen brushed off a rebound in European and Asian stocks and climbed after the Royal Bank of Scotland (RBS.L: Quote, Profile, Research) said it was cutting back its collateralised debt obligations (CDO) team to respond to a drop in market appetite, confirming the departure of a leading CDO executive.
High-yielding currencies also took a hit after an Australian hedge fund filed for bankruptcy protection on Wednesday in the United States, while smaller consumer finance companies in New Zealand have been collapsing in the past week.
Traders cited rumours in the market of some large European banks suffering big losses in the credit markets, driving the euro down more than 1 percent against the yen and the New Zealand dollar down more than 2 percent.
The fall in the single European currency came just a day after it posted its biggest one-day rise versus the yen since March 2004 as a surge in Wall Street shares helped relieve some of the fears about a worsening credit squeeze.
"There has been a drip-feed of bad news indicating that subprime is still causing problems and the yen seems to have (benefited)," said Adam Cole, senior currency strategist at Royal Bank of Canada Capital Markets.
By 1001 GMT, the euro was down 1.2 percent at 156.96 yen <EURJPY=R>, having swung sharply between 159.00 and 154.50 yen over the past two days. The move also dragged the euro down half a percent versus the dollar, to $1.3608 <EUR=>.
The dollar slipped 0.75 percent from late U.S. trade to 115.33 yen <JPY=> after posting its biggest daily percentage gain against the yen since January 2005 on Wednesday due to a surge in U.S. stocks.
Analysts also said a lack of new Japanese mutual fund launches on Thursday allowed the yen to rebound, a day after Nomura Asset Management started two new funds investing in overseas assets.
The high-yielding Australian dollar and New Zealand dollar both shed more than one percent against the greenback.
STOCKS LEAD THE WAY
Currencies have been jerked around by movements in global stock markets as investors scour for more signs of how turmoil in the U.S. subprime mortgage market is impacting credit markets around the world, as well as the broader U.S. economy.
In a letter released on Wednesday, Fed Chairman Ben Bernanke reiterated that the central bank was "prepared to act as needed" to ensure credit market problems do not adversely affect the economy, fuelling speculation about a cut in the benchmark rate.
But Fed Watcher Greg Ip said in a Wall Street Journal article on Thursday that the Fed is not rushing to cut benchmark interest rates because it want to break investors' view that the central bank was there to bail them out.
A fresh steer on the Fed's thinking could come from a Bernanke speech on Friday. Data will also be watched, with Thursday featuring revised second quarter U.S. growth figures and weekly jobless claims data.