FOREX-Yen in favour again as risk aversion flares up

* Yen firm across the board as safe haven flows return

* Emerging markets under pressure, rate hikes no help

* Fed as expected cuts bond purchases to $65 bln a month

* Final report on China's manufacturing sector next up

By Ian Chua

SYDNEY, Jan 30 (Reuters) - Investors ploughed back into the yen early on Thursday as safe-haven demand returned with a vengeance, while the New Zealand dollar came in the cross hair of sellers after the central bank left interest rates steady.

Renewed stress in emerging markets saw U.S. Treasuries soar, pushing the benchmark yield US10YT=RR to its lowest in over two months. The rally came even after the Federal Reserve cut its bond purchases by another $10 billion to $65 billion a month in a widely expected move. News Search ID:nW1N0IY01K

The loss of yield support knocked the dollar down sharply against the yen and allowed the euro to bounce back from one-week lows. The euro also fell against the Japanese currency, which is usually bought in times of heightened tension.

The dollar last traded at 102.15 yen JPY= , having fallen from Wednesday's peak of 103.45, while the euro skidded to 139.47 yen EURJPY=R from 141.26.

The dollar index .DXY was down just a touch as the euro rebounded to $1.3661 EUR= from a one-week low of $1.3603.

"Looking beyond the current period of market stress, we think the Fed's tapering program should underpin the U.S. dollar going forward and we remain short EUR/USD as a trade recommendation," analysts at BNP Paribas wrote in a note to clients.

Investors were also quick to punish the New Zealand dollar after the Reserve Bank of New Zealand (RBNZ) kept interest rates steady, dashing some expectations it might raise them.

The kiwi dollar tumbled more than half a U.S. cent even as the RBNZ laid the groundwork for a rate hike in March. It plumbed a one-month low of $0.8177 NZD=D4 before steadying at around $0.8212.

"The on-hold decision implies a little less urgency from the RBNZ than some participants may have thought, and a modest toning down of expectations is reflected in these adjustments," said Nick Tuffley, chief economist at ASB.

"It is unlikely it will fall too far, with the NZ economic outlook looking solid, and the prospect of higher interest rates just around the corner."

In contrast to the RBNZ, central banks in Turkey and South Africa lifted interest rates in the past 48 hours as they scrambled to stem a panic flight of capital that had sent their currencies and stocks skidding.

Yet, sentiment remained fragile with many emerging market currencies under pressure again overnight. Part of the reason for this exodus is less easy money from the Fed and the rate hikes have done little to stem the outflows, traders said.

The South African rand ZAR= fell more than 2 percent to 11.21 per dollar even after the country's central bank raised rates for the first time in almost six years. News Search ID:nL5N0L31QM

Sentiment could easily sour further should a report on China's factory activity confirm softness in the sector. HSBC will release the final report at 0145 GMT.

(Editing by Shri Navaratnam)

((ian.chua@thomsonreuters.com))

Keywords: MARKETS FOREX/