Dollar tumbles against yen on oil drop, risk aversion

By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar was set to post its biggest one-day decline against the yen in over six weeks on Tuesday, while also edging lower against the euro, after a drop in oil prices added to concerns about global economic growth.

Oil prices fell sharply for the second straight day. Analysts said the weakness intensified worries about slowing global growth since it could suggest falling global demand for the commodity as well as the potential for negatively impacted energy companies to drag on the broader credit market.

The dollar fell roughly 1 percent against the yen later in the U.S. session to 119.845 yen after hitting a six-week high on Friday of 121.700 following the Bank of Japan's shift to negative interest rates. The euro hit a session high against the greenback of $1.09400 on Tuesday.

Falling oil prices could mean falling global demand ... and it plays up concerns about the health of the global economy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Analysts said risk aversion boosted the yen and euro. Along with sinking oil prices, benchmark 10-year Treasury yields hit 1.853 percent, their lowest level in over nine months, while stock indexes worldwide fell.

"There still seems to be a good risk-off bid for yen," said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Ltd in New York.

He noted that weakness in oil prices could lead to more bankruptcies in the energy sector, which could roil the broader credit market.

The dollar held gains against commodity-linked currencies such as the Australian, New Zealand and Canadian dollars, and was last up over 1 percent against the New Zealand currency.

The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.18 percent at 98.837 . The dollar was last 0.84 percent lower against the yen at 119.985 yen , while the euro was last up 0.29 percent against the dollar at $1.09200 .

The dollar was last down 0.08 percent against the Swiss franc at 1.01900 franc . On Wall Street, the benchmark S&P 500 stock index was last down 1.8 percent.

(Reporting by Sam Forgione; Editing by Jonathan Oatis)