Yen Rises as U.S. Stocks Fall Amid Credit Worries

The yen rose on Tuesday as growing worries about a deterioration in U.S. credit markets pushed stock prices lower and prompted traders to unwind risky trades financed with the Japanese currency.

"The forex market is tracking the stock market step by step," said Brian Taylor, a senior currency trader at M&T Bank in Buffalo, New York. "Everytime stocks turn lower, it's a sign for investors to buy yen."

The euro was down 0.4 percent at 162.55 yen , while the dollar was down 0.3 percent at 118.75 yen .

Traders said the yen was inversely tracking the fortunes of stock prices, which fell after mortgage lender American Home Mortgage Investment said it could not fund home loans and may have to liquidate assets.

Earlier, the dollar had been drifting higher against the yen in a choppy session as investors tracked movements in the U.S. stock market and shrugged off a generally mixed batch of economic data.

At that time, the risk-seeking pushed the Australian and New Zealand dollars up versus the U.S. currency to U.S.$0.8587 and U.S.$0.7717, respectively.

Sterling rose 0.6 percent to $2.0351.