* Dollar hits 3-month high against broadly weaker yen
* Yen/stock mkt correlation snapped for now
* Stock markets winded; AIG set for historic loss
* German Ifo falls slightly; eyes on Bernanke
(Repeats to make clear this is UPDATE 5)
By Veronica Brown
LONDON, Feb 24 (Reuters) - The dollar hit a three-month high against a broadly weaker yen on Tuesday, with the recent correlation between falling stocks and yen strength broken after the exhaustive unwinding of risk-sensitive assets.
Outside of strength versus the yen, the dollar fell against a basket of six major currency rivals as U.S. stock futures pointed to a higher Wall Street open -- having hit a 12-year closing low on Monday.
World stocks as measured by MSCI's world equity index hit their lowest in almost six years, while the FTSEurofirst 300 Index fell 1.7 percent on the day.
The link between the yen gaining as a perceived safety bid when stock markets tumble has been taken over by worries about Japan's sharp economic downturn and a lack of convincing policy steps eroding confidence.
"The driving factor behind some of the yen weakness has been domestic developments in Japan...,figures have looked pretty bad and there has also been political turmoil. Taken together this has weighed," said Phyllis Papadavid currency strategist at SG in London.
"Also long positioning has also been quite chunky for quite some time. It could be that some people are unwinding positions," she added.
While some analysts have concluded that unwinding of the yen-financed carry trade is complete, others are not so sure.
"It's not unprecedented for the yen to break down in terms of its relationship with stocks. When that happened last year, it held for several weeks, but when it re-established itself it did that with a vengeance," said Adam Cole, global head of FX research at RBC Capital markets in London.
By 1220 GMT, the dollar was up 1.5 percent at 95.86 yen, having earlier hit a three-month high at 95.89 yen, according to Reuters data.
The euro climbed to a seven-week high of 122.78 yen. Sterling rose 1.6 percent to 139.20 yen while the Australian dollar gained 2.0 percent to 61.90 yen.
Japanese Finance Minister Kaoru Yosano said the government was looking at stock buying and other methods to support the share market..
Euro strength against the yen also helped buoy the single currency versus the dollar. The euro was last up 0.7 percent at $1.2803.
IFO UNDERSHOOTS F'CAST
Markets shrugged off Germany's Ifo business climate indicator, which fell to 82.6 in February. That was slightly lower than forecasts for it to stay at January's level of 83.0.
The Ifo current conditions indicator worsened to 84.3, also slightly below expectations for 85.0, but the forward looking expectations component improved for a second month.
"We remain a long way away from a recovery scenario and overall activity levels are dreadful, but there may be evidence that the trough in the cycle is near, if not here already," says Audrey Childe-Freeman, senior currency strategist at Brown Brothers Harriman in a note to clients.
Euro zone industrial new orders fell by 5.2 percent month-on-month in December, in line with forecasts for a 5.0 percent decline.
Traders will keep an eye on developments in the U.S. banking sector after a report on Monday that the government could end up owning a stake of up to 40 percent in Citigroup.
American International Group Inc looks set to make the biggest quarterly loss in corporate history and could seek more aid despite the billions of dollars already committed to it.
U.S. Federal Reserve Chairman Ben Bernanke is set to deliver his semi-annual testimony to Congress later in the day, as he seeks to offer assurance for the troubled economy.
(Additional reporting by Farah Master)
(Reporting by Veronica Brown; Editing by Andy Bruce)