The dollar fell to 1-1/2 year lows versus the yen on Friday as fears of wider credit-related losses at U.S. financial institutions had investors dumping risky assets and anticipating more Federal Reserve rate cuts.

The greenback's woes were also worsened by news that U.S. consumer confidence dropped to its lowest level in two years in November on falling house prices and high energy costs.

Now we are getting the confidence numbers, which definitely enforce the theme that the Fed will be forced to cut interest rates at a time of rising inflationary pressure, and that is really not good for the dollar, said Ashraf Laidi, chief market analyst at CMC Markets in New York.

The dollar dropped as low as 110.52 yen, its lowest level since May 2006, according to Reuters data. It was last trading at 110.88 yen, down 1.6 percent on the day.

The euro hit a peak of $1.4752, its highest level since launching in 1999, according to Reuters data, and was last trading flat at $1.4679.

Fears that more U.S. financial firms will be hit by credit market turmoil escalated on Friday after Wachovia Corp said it had incurred about $1.1 billion of further losses from the credit market crisis and that it expects increased loan losses in the fourth quarter.

That raised risk aversion and pushed U.S. stocks down. Heightened risk aversion encouraged investors to unwind carry trades, which are normally funded in low-yielding currencies such as the yen, boosting the Japanese currency.

The broader currency move is one of risk-aversion. The dollar will do a bit better versus the Europeans while the yen is poised to strengthen more broadly, said Shaun Osborne, senior currency strategist at TD Securities in Toronto.

(Reporting by Lucia Mutikani and Steven C. Johnson; Editing by Andrea Ricci)