* Morgan Stanley incurs loss; Wells Fargo credit losses up
* Euro, high-yielders down as risk trades fall
* Bank of England to keep asset-buying level (Updates prices, adds quotes)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 22 (Reuters) - The dollar drifted higher against the euro while the yen edged up on Wednesday as risk appetite worsened after weak Morgan Stanley results and Wells Fargo's credit losses dampened optimism about a global economic recovery.
The U.S. banks' earnings exacerbated pessimism in a market already nervous after Federal Reserve Chairman Ben Bernanke's cautious assessment on the U.S. economy on Tuesday. The Fed chief repeated his remarks on Wednesday before the Senate Banking Committee.
Wall Street shares were volatile, making it difficult for currencies to make headway in either direction.
"Overall, the FX-equity link is still pretty tight," said Vassili Serebriakov, senior currency strategist at Wells Fargo in New York.
"Risk trades are down. What we have seen is that bond yields were lower after Bernanke's testimony and that's consistent with less-optimistic markets and more subdued risk appetite."
In mid-morning New York trading, the dollar fell 0.1
percent to 93.58 yen
Morgan Stanley's earnings report, which showed the bank posting a second-quarter loss of $1.10 per share, kicked off dollar buying in New York trading. See [ID:nLM377743].
"Morgan Stanley missed expectations by a mile and this is weighing on risk appetite," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.
"Overnight, risk appetite was already down after Bernanke's testimony. Morgan Stanley was the icing on the cake."
Wells Fargo also released results on Wednesday. While it said its quarterly profit increased 47 percent, the report showed a surge in bad loans. That fueled the view that the fourth-largest U.S. bank still needs more capital to cover loan losses. See [ID:nN22255536].
Sterling pared losses after minutes from the Bank of England's latest policy meeting showed a unanimous decision to maintain the bank's 125 billion pound asset-buying total and keep interest rates at 0.5 percent.
The market took this as a signal that UK quantitative
easing could be at or near an end -- suggesting the economy may
be starting to recover. But the pound was still 0.2 percent
weaker at $1.6415
Higher-risk currencies such as the Australian and New Zealand dollars edged down after rising in recent sessions.
The Australian dollar fell 0.6 percent to US$0.8136
(Editing by Dan Grebler)