* Dollar, yen higher after China tightening move
* Euro hits 9-month low, dollar 5-week low versus yen
* Fed policy meeting, Bernanke reconfirmation in focus (Updates prices, adds quotes, details)
By Wanfeng Zhou
NEW YORK, Jan 26 (Reuters) - The dollar and yen rose on Tuesday after China implemented a planned increase in required reserves for some banks, sparking risk aversion as investors worried about the impact on the global economic recovery.
The news from Beijing weighed on global stock markets earlier on concern that China may take further steps to cool its blistering economic growth.
"The main story given China is risk aversion," said Dan Cook, senior market analyst at IG Markets in Chicago. "There is a lot of concern over their lending rules and any type of tightening."
Over the past few months, investors have tended to borrow the dollar and yen cheaply to buy higher-yielding currencies when risk appetite increases and to reverse those trades when risk aversion spikes.
China's central bank ordered banks that need to raise their reserve ratios to implement the change on Tuesday, banking sources said.
"There have been reports that Chinese banks have begun to restrict new loans and the sheer reality of this happening is making traders realize that China is getting very serious about slowing their economy," said Kathy Lien, director of currency research at GFT in New York.
In midday trading, the ICE Futures U.S. dollar index, a measure of the greenback against a basket of six major currencies, rose 0.3 percent to 78.415.
Data showing U.S. consumer confidence in January rose to its highest level since September 2008 and a drop in November home prices had limited impact on currencies.
The euro fell 0.5 percent to $1.4085, despite a survey showing German business sentiment rose more than expected in January.
The dollar was down 0.7 percent at 89.61 yen, after hitting a five-week low at 89.35 yen, according to Reuters data. The euro traded 1.2 percent lower at 126.20 yen, off a nine-month low of 125.62 yen.
S&P JAPAN OUTLOOK
The yen had earlier trimmed gains after ratings agency Standard and Poor's cut its outlook on Japanese sovereign debt to negative from stable. But it quickly recovered on the view that only a small proportion of Japanese government bonds are held offshore.
"It would be a very different story if a lot of foreigners held JGBs (Japanese government bonds). It is another reminder that the fiscal side of the story continues to rot in many of the developed economies and I think that's at the forefront of investors' minds right now," said HSBC director of currency strategy Paul Mackel.
Japanese Deputy Finance Minister Yoshihiko Noda pledged fiscal discipline following the S&P announcement. Finance Minister Naoto Kan echoed those comments, saying Japan must show it has a road map to restore fiscal health.
Sterling fell 0.5 percent against the dollar to $1.6155 after Britain reported that it managed to emerge from recession at the end of 2009 on very weak growth, suggesting any UK monetary tightening was still a long way off.
The higher-yielding Australian and New Zealand dollars fell versus both the dollar and yen.
Markets were also awaiting the interest-rate announcement and policy statement from the Federal Reserve on Wednesday at the close of its two-day meeting.
A looming vote on the confirmation of Ben Bernanke to a second term as Fed chairman also remained in focus as Democrats scrambled to secure the needed votes. The U.S. Senate may be able to vote by Thursday or Friday, Senate Majority Leader Harry Reid said. Bernanke's current term is to expire on Sunday. (Additional reporting by Nick Olivari; Editing by Leslie Adler)