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The yen fell on Friday, tumbling to a 10-day low versus the dollar, as steps by U.S. authorities to boost liquidity and shore up confidence in distressed financial markets revived appetite for risk.

News that U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work with Congress on a comprehensive plan to deal with toxic bank assets choking the financial system pressured the low-yielding yen, which had tapped safe-haven flows from the markets turmoil.

Those losses were extended as the Federal Reserve said it would provide loans to banks and institutions for purchases of high-quality asset-backed commercial paper from money market funds.

"The picture has changed dramatically and the biggest loser is the yen as risk appetite returns," said Ronald Simpson Managing, director global currency analysis at Action Economic in Tampa, Florida.

The dollar rose as high as 108.06 yen , according to Reuters data. It was last up 2.2 percent at 107.87 yen.

The yen dropped 2.5 percent to 155.16 yen , buoying the euro zone single currency against the dollar. The euro was last up 0.4 percent at $1.4409.

While details of the government's toxic-debt plan are sketchy, analysts are hoping the program, as well as steps by other financial authorities, will finally quell some of the turmoil following the collapse of Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) (LEHMQ.PK: Quote, Profile, Research, Stock Buzz) and the bailout of U.S. insurer AIG (AIG.N: Quote, Profile, Research, Stock Buzz) this week.

"It's all part of the program to restore confidence in financial markets. They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday," said Boris Schlossberg, director of currency research at GFT Forex in New York.

"It seems to be working ... Risk aversion for the time being has been stemmed. The devil is in the details, everyone wants to see what the proposal will be like."

Shares on Wall Street surged at the open, with the Dow Jones industrial average .DJI jumping more than 3 percent. European stocks rallied more than six percent at one point.

Higher-yielding currencies such as the Australian dollar also rose as investors regained some confidence.

The Australian dollar gained 3.0 percent to US$0.8261. (Editing by James Dalgleish)

FOREX-Yen tumbles across the board as risk aversion ebbs
By Lucia Mutikani
Reuters

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