(Changes byline, updates prices, adds quotes)
By Simon Falush
LONDON, Sept 5 (Reuters) - The yen gained broadly on Wednesday as falls in Asian and European shares dampened risk appetite, prompting investors to ditch risky carry trades funded by cheap borrowing in the Japanese currency.
Mounting volatility in U.S. and European money markets as borrowers scramble to raise funds is heightening investor aversion towards risk, traders said.
European bourses tracked falls in Asian stocks overnight.
On the foreign exchange market, low yielders like the yen tend to benefit from risk aversion, while high yielders such as the New Zealand dollar are sold off.
"The Nikkei lost 262 points and the DAX is down, showing that risk aversion is back," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.
Euro zone service sector growth eased slightly in August and market turbulence drove future business confidence to a 4-1/2 year low, a survey showed on Wednesday.
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However, the data did not move the euro as investors continue to focus on moves in global risk appetite.
"The currency market moves back and forth with equities and investors will continue to be nervous over the next couple of weeks," said Praefcke.
By 0937 GMT, the dollar was down 0.4 percent at 115.86 yen <JPY=>, but still about four yen above August's 14-month trough.
The euro was down half a percent against the yen at 157.41 yen <EURJPY=>. It eased versus the dollar to $1.3588 <EUR=>.
Investors remained cautious before more U.S. economic data that may give further clues on the course of Federal Reserve monetary policy.
Non-farm payrolls are due on Friday, while Wednesday features weekly mortgage market figures, the ADP private sector employment numbers and the Federal Reserve's Beige Book report on economic conditions around the country.
"The ADP release will attract greater focus than usual, given the U.S. economy's increasing dependence on the labour market," said ING in a note to clients. "A weak ADP could be a catalyst for another round of risk aversion."
Richmond Fed President Jeffrey Lacker told Reuters on Tuesday he would back an interest rate cut if the evidence pointed to slowing economic growth and diminished inflation, but said it was too early to be sure such a move was warranted.
RATES STEADY FOR NOW
The European Central Bank holds its policy meeting on Thursday, with many economists believing it will keep rates unchanged at 4.0 percent this time due to the recent turmoil in credit markets.
The Reserve Bank of Australia on Wednesday left interest rates unchanged at 6.50 percent, as widely expected.
The Australian dollar, which had gained the previous session after robust second-quarter economic growth figures revived speculation that the RBA will need to raise interest rates once again to curb inflation, eased against the yen, trading down 0.7 percent at 95.18 yen <AUDJPY=R>.
The Bank of Canada is seen leaving interest rate settings steady at 4.5 percent this session, while the Bank of England starts a two-day rate-setting meeting on Wednesday at which it is widely expected to keep rates at 5.75 percent.