* Yen sought after as world's stock markets tumble
* Canadian dollar braces for potential interest rate cut
* Pound struggles near 7-year low on BoE's Carney comments
(Adds quotes, updates)
By Anirban Nag
LONDON, Jan 20 (Reuters) - The safe-haven yen soared on
Wednesday, as risk appetite soured after crude oil prices fell
to near 13-year lows, dragging the dollar to a one-year low with
investors trimming the chances of more tightening by the Federal
Reserve.
The dollar fell more than 1.2 percent to 116.10 yen JPY=
in London trade, its lowest since January 2015. The dollar had
risen to 118.115 on Tuesday, after risk appetite showed
tentative signs of recovery amid a bounce in crude oil prices
and hopes of further stimulus in China.
But that rally fizzled out with oil resuming its downward
trek, hurting sentiment towards stocks and encouraging investors
to buy yen, Swiss francs CHF= , German Bunds and U.S.
Treasuries.
The euro, a low-yielding currency used by investors to fund
riskier positions, also rose against the dollar to $1.0943
EUR= . But it underperformed the yen, and was down 0.7 percent
at 127.34 yen EURJPY= .
"The yen has shown maximum sensitivity to risk sentiment in
the recent weeks," Credit Agricole (PA:CAGR) currency strategist, Manuel
Oliveri, said. "The upside for the yen, though, is likely to be
capped before the Bank of Japan meeting next week, given they
too are struggling with weakening inflation prospects."
Lower crude prices are posing a challenge to policymakers in
much of the developed world.
Talk of recession risk in the United States has intensified
in the past few days amid rising market volatility, lower oil
prices and slowing domestic activity, driving investors to price
in chances of just one rate hike by the Fed in 2016.
Collapsing oil prices will play a big role when the Bank of
Canada (BoC) meets later on Wednesday. Some are expecting the
BoC to lower interest rates to cushion the blow from oil prices.
The Canadian dollar was heading for its 13th straight
trading day of losses against its U.S. counterpart, hitting
C$1.4654 CAD=D4 per dollar, its lowest in 13 years.
"Investors have rapidly moved to price in greater risk of a
cut from the BOC this week, partly driven by lower oil prices in
the wake of the shift in sanctions on Iran," CitiFX currency
strategists said.
"With longer-term investors having lagged the leveraged
sector in selling the Canadian dollar, there should be scope for
catch-up and further downside on spot."
Sterling struggled near a seven-year low after being hit on
Tuesday by dovish comments from Bank of England (BoE) Governor
Mark Carney, who said he had no set timetable for raising
interest rates, warning of more damage to come from a slowing
economy in China, the world's second biggest economy.
The pound was weaker at $1.4150 GBP=D4 after falling to
$1.4130 on Tuesday, its lowest since March 2009 as investors
await a wages and jobs report later in the day.