* Investors avoid risk after lowered World Bank forecast
* Euro falls across board on fiscal, growth worries
* Market wary before Fed meeting, U.S. debt auctions (Recasts, updates prices)
By Nick Olivari
NEW YORK, June 22 (Reuters) - Investors' appetite for risk fell on Monday, driving up the safe-haven U.S. dollar and yen and dragging down riskier higher-yielding currencies after an outlook by the World Bank stirred worries about global growth.
The euro came under added pressure and dropped near $1.38 as a closely watched business climate survey in Germany, the euro zone's largest economy, painted a mixed picture about Germany.
The World Bank said Monday that prospects for the global economy remain "unusually uncertain," and it cut its 2009 growth forecasts for most economies. The U.S. and Japanese currencies have tended to rise on extreme risk aversion in recent months.
"Risk aversion has resurfaced as market participants take profits on riskier exposures," said Samarjit Shankar, director of global foreign exchange strategy at the Bank of New York Mellon in Boston. There are "renewed concerns about the extent of the ongoing global recession and the sustainability of the 'green shoots' of recovery."
In late afternoon in New York, the euro was down 0.6 percent at $1.3857 after hitting a session low of $1.3827, according to Reuters data. On electronic trading platform EBS, the low was 1.3826.
Data showed the German Ifo business climate index rose to 85.9 in June from 84.3 the previous month, beating forecasts of 85.2. The current conditions index, however, fell to 82.4 from 82.5, versus a forecast of 83.1.
Traders also cited concerns about Germany's widening budget shortfall as an excuse to sell euros. Germany will raise its net new borrowing target in 2010 to a record level that may exceed 100 billion euros ($139 billion) as the country attempts to battle the financial crisis.
"Germany is the financial anchor of the euro zone. If there are fiscal problems in Germany, all the other states in the euro zone just crumble by the wayside," said Boris Schlossberg, director of currency research at GFT Forex in New York. "That's why the market is reacting so negatively."
Against the yen, the euro fell 1 percent to 132.93 yen, while the dollar dropped 0.3 percent to 95.93 yen, according to EBS.
The euro had briefly recovered some losses after European Central Bank President Jean-Claude Trichet said on Monday that he continues to see an economic recovery next year. Speaking in Madrid, he said policymakers must remain alert despite initial signs of a slowing in the pace of economic decline.
FED MEETING
Moves in the foreign-exchange market were limited, with investors awaiting the U.S. Federal Reserve's policy-setting Open Market Committee meeting on Tuesday and Wednesday.
All eyes will be on the accompanying statement where the Fed may offer clues about how it plans to exit from its recent unconventional measures and whether it may extend its purchase of U.S. Treasuries. The market is also expecting the central bank to give a slightly brighter economic view.
"I think investors are hesitant to go into the meeting overly short U.S. dollars," said Omer Esiner, senior currency analyst at Travelex Global Business Payments in Washington.
"There's a potential that we could see a slight upgrade in the Fed's assessment of the economy and perhaps some signs that an exit strategy from the ultra-accommodative policies of the Fed is being considered."
The Australian dollar fell 2.1 percent to $0.7871 while the New Zealand dollar was down 2 percent at $0.6301, according to Reuters data.
Sterling fell 0.9 percent to $1.6343, after going as low as $1.6320.
A record $104 billion in U.S. Treasury debt is to be auctioned in the United States this week, giving investors one more factor to consider. Short term interest rates fell on Monday. (Reporting by Nick Olivari and Wanfeng Zhou; Editing by Kenneth Barry)