The yen rose while high-yielding currencies came under pressure on Tuesday as concerns over the health of the U.S. economy weighed on global equities, prompting investors to trim exposure to risky assets.

Asian and European shares tracked Wall Street lower after a report on Monday showed the inventory of unsold pre-owned U.S. homes reached a near 16-year high in July.

More reports about banks' exposure to risky U.S. subprime mortgages also sapped investor risk appetite.

People are a bit wary that bad news could come out any second, particularly from the U.S. financial sector, so they are reluctant to get back into carry trades, said Chris Turner, head of FX strategy at ING.

(U.S. housing data showed) the housing market correction could go longer than expected and that could weigh on expenditure going forward, he added.

By 7:40 a.m. EDT the yen was up 0.15 percent at 115.53 per dollar though it was still off its 14-month high around 111.60 set earlier in August.

The New Zealand dollar -- which offers the highest interest rate in the industrialized world -- was down 1 percent against the U.S. currency at one point before trimming losses.

The euro found support after a survey showed German business sentiment fell less than predicted, indicating growth momentum in the euro zone's biggest economy is not slowing as much.

The single currency was up 0.2 percent at $1.3665 and was steady on the day at 157.79 yen.

FED RATE CUT SPECULATION

Recent turbulence in the credit market has fuelled speculation that the Federal Reserve may cut its funds rate, after it reduced the discount rate at which banks can borrow directly from the central bank by 50 basis points to 5.75 percent earlier this month.

Given such speculation, investors are awaiting a speech on Housing and Monetary Policy by Fed Chairman Ben Bernanke later this week which could offer hints about the future path of Fed policy. Minutes from the Fed's August meeting are due later on Tuesday.

Investors also awaited the Conference Board's report on U.S. consumer confidence in August at 10 a.m. EDT to see whether the financial market turbulence has dented consumer sentiment.

U.S. consumer sentiment is expected to have dropped to 104.0 in August after rising to 112.6 in July, the highest reading since August 2001.

We are not yet convinced the Federal Reserve has sufficient comfort on the inflation outlook to reduce its target rate for Federal Funds on September 18, HBOS said in a note to clients.

On balance we expect a gradual deterioration in economic data - starting with U.S. consumer confidence and extending from there - over the days and weeks ahead. This won't happen fast enough to prompt a Fed easing on 1September 18, but it will undermine the bullish case for risky assets.

Expectations are fading for the European Central Bank to raise interest rates at its meeting next week. The bank's President Jean-Claude Trichet said on Monday the ECB had noted the turbulence on financial markets and would take all factors into account when deciding rates next week.

Ben Bernanke European union