* Yen extends gains on Asian shares' fall, risk aversion
* Trade subdued before weekend, Chinese New Year holidays
* Sterling weak ahead of GDP, retail sales data
By Kaori Kaneko
TOKYO, Jan 23 (Reuters) - The yen rose against major currencies on Friday, benefitting from concerns about the global economy that sent Asian shares lower and made investors more averse to taking risks.
Trade was subdued given few major economic events ahead of the weekend and the Chinese New Year holidays next week, though that exaggerated moves in the market, traders said.
The Japanese currency hovered near a 13-½ year high against the dollar and stayed in sight of a seven-year peak against the euro hit earlier this week due to global banking woes.
Gains in the yen picked up after Tokyo's Nikkei share average extended losses, dropping 3.8 percent to mark a two-month closing low on a dour outlook for corporate earnings.
The MSCI index of Asia-Pacific stocks outside Japan shed over 2 percent.
"There is a move towards risk aversion against countries with fragile economies, notably Europe and the U.S.," said Toru Umemoto, chief FX strategist at Barclays Capital.
But he also said the dollar was holding firm against currencies other than the yen partly due to swift and drastic economic steps in the United States.
Traders said that U.S. economic fundamentals are weak after a run of bleak data but the market's spotlight was on the souring economy in Europe, with Britain and the euro zone facing pressure to lower interest rates further.
They said the yen continued to be well-bid as a relatively safe currency because investors' risk appetite remained low on worries about the deepening global recession.
Market players were on the lookout for any comments from Japanese authorities about possible currency intervention to stem the yen's rise.
Japanese Finance Minister Shoichi Nakagawa said on Friday that he was watching financial markets very carefully.
Economic problems in the United States and Europe were affecting Japan's stock and currency markets, Nakagawa told a news conference.
"If the dollar drops below 85 yen, or the currency market moves sharply, caution about Japanese intervention will increase," said Kazuyuki Kato, treasury department manager at Mizuho Trust & Banking. "But it is unlikely that Japan will intervene at current market levels."
The dollar was supported by comments from U.S. Treasury Secretary nominee Timothy Geithner, who said a strong dollar is in the United States' interest.
His remarks came on Thursday when he won the Senate Finance Committee's backing to head the U.S. Treasury.
The dollar dipped 0.5 percent to 88.35 yen from U.S. trading on Thursday, in sight of Wednesday's low of 87.10 yen -- the lowest since July 1995.
The euro fell 1.0 percent to 114.21 yen, not far from the seven-year trough of 112.08 yen touched on Wednesday.
The euro was down 0.5 percent at $1.2926.
POUND DOWNBEAT
Sterling stayed under selling pressure on persistent worries about losses in the UK banking sector and economic distress.
Concerns are growing about the deteriorating state of UK public finances and how the government will fund huge bailout packages when it is already running a large fiscal deficit.
Traders awaited the UK's preliminary economic growth data for the fourth quarter and retail sales for December, both due later on Friday.
The British economy likely shrank 1.2 percent from the previous quarter while the retail sales data is seen showing a fall of 0.6 percent from a month earlier, according to Reuters surveys.
Sterling will likely dip if the data comes in weak, though the currency could then rebound as traders are expected to square positions ahead of the weekend, analysts said.
The pound fetched $1.3740, down 1.0 percent from New York trade and not far from the 23-year low of $1.3620 hit on Wednesday."
Sterling slipped 1.1 percent to 121.74 yen, in sight of the record low of 119.36 yen hit this week. (Editing by Brent Kininmont)