* China move stirs fears on global economic recovery
* Euro hits 9-month low, dollar at 5-week low vs yen
* Fed policy meeting, Bernanke reconfirmation in focus (Updates prices, adds comment)
By Steven C. Johnson
NEW YORK, Jan 26 (Reuters) - The dollar rose on Tuesday after China told certain banks to raise reserve requirements, dulling investor demand for high-yield assets and currencies on fears the lending restrictions may slow a global recovery.
The Japanese currency also rose as investors unwound trades financed with cheaply-borrowed yen and dollars on concern that China was trying to cool blistering economic growth. For details, see [ID:nSGE60P039]
"Reports that Chinese banks have begun to restrict new loans and the sheer reality of this happening is making traders realize that China is getting very serious about slowing their economy," said Kathy Lien, director of research at GFT Forex in New York.
Nick Bennenbroek, head of currency strategy at Wells Fargo, said worries about additional Chinese efforts to tighten lending was a factor driving exchange rates on Tuesday.
The euro fell 0.5 percent to $1.4077 <EUR=> as increased risk aversion outweighed a survey that showed German business sentiment improved more than expected this month. [ID:nLDE60P0PG]
Against, the yen the euro also fell, down 1.2 percent to 126.20 yen <EURJPY=>, while the dollar shed 0.6 percent to 89.65 yen <JPY=>, near an earlier five-week low of 89.35 yen, according to Reuters data.
STERLING SLIPS, S&P WARNS ON JAPAN
Sterling fell 0.6 percent to $1.6148 <GBP=>. While data showed the UK economy emerged from recession at the end of 2009, growth was weak, suggesting higher interest rates were a long way off.
The higher-yielding Australian and New Zealand dollars both fell against the dollar and yen.
The yen had earlier trimmed gains after ratings agency Standard and Poor's revised its outlook on Japanese sovereign debt to negative from stable, but it recovered quickly on the view that only a small proportion of Japanese government bonds are held offshore. [ID:nTKF106816]
"It would be a very different story if a lot of foreigners held JGBs (Japanese government bonds). It is another reminder that the fiscal side of the story continues to rot in many of the developed economies and I think that's at the forefront of investors' minds right now," said Paul Mackel, director of currency strategy at HSBC in London.
Japan's deputy finance minister, Yoshihiko Noda, pledged fiscal discipline following the S&P announcement. Finance Minister Naoto Kan echoed those comments, saying Japan must have a road map to restore fiscal health. [ID:nTKF106818]
Markets were also awaiting Wednesday's interest-rate announcement and policy statement from the Federal Reserve as well as a looming Senate confirmation vote for Ben Bernanke, who was nominated by President Barack Obama to a second term at the helm of the U.S. central bank.
Bernanke's current term expires on Sunday. [ID:nN2699162] (Additional reporting by Wanfeng Zhou; Editing by Leslie Adler)