FOREX-Recession fear sweeps yen up; high-yielders fall

* Yen rallies; dlr/yen down 0.5 pct at 95.45

* Fed pares economic outlook, fanning recession fears

* Stocks slide; US automakers, Citi seen as pressure points

(Adds quotes, updates prices)

By Veronica Brown

LONDON, Nov 20 (Reuters) - The low-yielding yen extended a broad rally against major currencies on Thursday after downbeat economic forecasts from the Federal Reserve underlined dire global conditions and heightened risk aversion.

Investors were keen to continue cutting exposure to risk, and unwinding yen-funded carry trades in the process, due to fears about the viability of bank giant Citigroup Inc and major U.S. automakers.

The U.S. S&P 500 index dropped Wednesday to its lowest since early 2003 <.SPX>, while futures pointed to weaker open. Citigroup remained in focus after its shares hit a 13-year trough on Wednesday as investors question its prospects for survival [ID:nN19311307].

Meanwhile, at least one among household names General Motors Corp , Ford Motor Co and Chrysler LLC is at risk of bankruptcy if a last-minute bail-out plan fails. [ID:nN19320198]

Analysts said that as moves in the yen were correlating strongly with equities, further steep stock market losses would hasten further rises for the Japanese unit, which could take it back to 13-year highs against the dollar.

"Risk aversion has just completely dominated markets overnight -- this was accentuated by the minutes from the FOMC meeting last night," RBC currency strategist Christian Lawrence said.

"We have a clear under-performance of high-yielders relative to their lower-yielding counterparts. You could have the worst data in the world coming out but the yen will still rally on risk aversion," he added.

By 1113 GMT, the euro had fallen 0.4 percent to 119.55 yen, hovering above a one-week low of 118.59 yen hit according to Reuters data earlier in the global session.

The dollar was down half a percent at 95.45 yen , while the higher-yielding Australian dollar tumbled roughly 2 percent to 59.76 yen .

The traditional safe-bet Swiss franc was also hammered against the yen and dollar , losing out in the battle of low-yielding currencies as Japanese and U.S. borrowing costs now significantly undershoot those of Switzerland.

GRIM OUTLOOK

While the dollar was trapped in narrow ranges against the euro and a basket of major currencies <.DXY>, it gained traction versus the higher-yielding Australian and New Zealand dollars on continued investor deleveraging.

The New Zealand currency slipped more than 1 percent to $0.5339, its lowest level since early 2003, and tumbled 1.5 percent against the yen. .

The minutes released on Wednesday from the Fed's October policy meet showed the central bank sees U.S. growth contracting in the second half of the year and the first half of 2009, even after a 50 basis point interest rate cut to 1.0 percent [ID:nN19340273].

This kept prospects high that U.S. rates could fall even further as the Fed tries to minimise the impact of the recession.

Major central banks have been slashing rates aggressively in an attempt to boost their economies during an extreme slowdown. Figures this month show that Japan and the euro zone fell into a recession in the third quarter.

"People are starting to give up on the hope that the economy is going to recover," said David Woo, head of currency research at Barclays Capital in London.

(Additional reporting by Naomi Tajitsu in London; Editing by Toby Chopra)