* Yen falls broadly as investors' risk appetite improves
* Dollar rises above 101 yen, highest since Oct 2008
* Dollar pressured vs euro, sterling; European stocks higher
(Adds quote, updates prices)
By Tamawa Desai
LONDON, April 6 (Reuters) - The yen fell broadly on Monday, as investors took on perceived riskier assets on growing hopes that a global economic downturn may have hit bottom.
The dollar rose above 101 yen, the highest in almost six months, while the euro also extended gains against the Japanese currency to levels seen last October.
"Markets are taking heart that the pace of economic contraction is fading," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ. "That is helping risk assets and prompting the unwinding of safe assets, namely yen and dollar."
By 0904 GMT, the dollar was up 1.1 percent at 101.35 yen, slightly below a nearly six-month high of 101.43 yen.
A move above 101.00 yen was technically significant as it was a 38.2 percent Fibonacci retracement of its decline from a peak in 2007 to its 13-year low in January.
The euro hit a high of 137.43 yen before receding to be up 1.4 percent at 137.18 yen.
European shares were higher in morning trade, up 1.2 percent on the day after equity markets rose in Asia.
Data on Friday showed U.S. firms shed another 663,000 jobs in March, while the unemployment rate soared to 8.5 percent. While the data was grim, U.S. stocks ended higher, and prior data was revised to show job losses of 741,000 in January, which some saw as possibly the bottom of the job loss cycle.
The dollar also lost ground against other major currencies as risk appetite improved.
The euro gained 0.3 percent to $1.3524.
The common currency briefly pared some gains after European Central Bank Executive Board member Lorenzo Bini Smaghi said currency markets were prone to overshooting or undershooting, and as a result, intervention by authorities may sometimes be appropriate.
Markets showed little reaction to data showing better sentiment among euro zone investors, with the Sentix index improving to -35.3 in April from -42.7 the previous month, and beating forecasts for -40.7.
Separate data showed euro zone producer prices fell 1.8 percent in February from the same period a year ago, while retail sales dropped 0.6 percent in February from the previous month. Both were slightly weaker than market forecasts.
The euro was earlier supported by a confidential report quoted by the Financial Times that said struggling European Union countries in central and eastern Europe should switch to the euro even without full euro zone membership.
Sterling rose above $1.4900 to its highest in two months, driven by gains against the yen and up 0.6 percent on the day. The pound also rose above 150 yen.
Traders said a recovery in emerging market assets, buoyed by G20 steps to help developing economies last week, added to investors' appetite for riskier and higher-yielding currencies such as the Australian and New Zealand dollars.
"The yen seems to be becoming the easiest to secure in the market now, compared with the dollar and euro. A move may be emerging in which speculators use the yen to fund investments in other currencies and assets," said Mitsuru Saito, chief economist at Tokai Tokyo Securities.
"We can probably say a mini yen carry trade is back."
Carry trades are when investors sell a low-yielding currency to buy higher-yielding assets and they were hugely popular among Japanese retail investors earlier in the decade.
The New Zealand jumped more than 2 percent at one stage to a five-month high above 60 yen. The Australian dollar gained 1.3 percent to a six-month peak of 72.87 yen, according to Reuters data.
(Editing by Ruth Pitchford)