* Yen falls broadly, risk demand improves on higher stocks
* Dollar rises above 101 yen, highest since Oct 2008
* Dollar pressured vs euro, sterling
(Adds quotes, updates prices)
By Naomi Tajitsu
LONDON, April 6 (Reuters) - The yen fell broadly on Monday, hitting its weakest against the dollar and the euro in nearly six months as investors took on perceived riskier assets on the view that a global economic downturn may have hit a bottom.
The dollar rose as high as 101.45 yen, according to Reuters data, vaulting above 101 yen for the first time since last October, while the euro climbed as high as 137.43 yen, a level last seen roughly half a year ago. Analysts said that a 1.2 percent rise in European shares was the catalyst of weakness in the yen, which extended losses made in Asian trade.
"As long as stocks can retain their buoyancy ... risk appetite and risk-based trades will be in vogue and investors will continue to add to and rebuild yen short positions," said Jeremy Stretch, currency strategist at Rabobank in London.
Still, he added that market participants were cautious about whether the rebound in risk appetite would last, due to the ongoing uncertainty about whether weakness in the global economy has peaked.
By 1027 GMT, the dollar was up 1 percent at 101.25 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 trimmed some of its earlier gains against the yen, but still traded 1.1 percent higher at 136.70 yen.
The dollar extended its gains against the Japanese currency after 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.
"Markets are taking heart that the pace of economic contraction is fading," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ in London. "That is helping risk assets and prompting the unwinding of safe assets, namely the yen and dollar."
The dollar lost ground against other major currencies as risk appetite improved. Both the U.S. and Japanese currencies have rallied in past months due to shrinking demand for risk as global economic conditions worsened.
The euro traded 0.2 percent higher at $1.3515, after rallying to around $1.3580 in earlier trade.
The common currency 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.
Meanwhile, 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.
But separate figures indicated 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.
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.
This boosted the single European currency on the view that while the idea is still in its infancy, such a move would ultimately be beneficial to the entire European region.
Sterling rose to a two-month high of $1.4952 before retreating to $1.4900, 0.5 percent higher on the day. Gains in the UK currency were driven by a rally the yen to 151.52 yen, its highest since last November.
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 New Zealand dollar 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 high of 72.87 yen, according to Reuters data.
"We are perhaps looking at the glass being half full than three-quarters empty as we were in the past few months," said Stretch at Rabobank.
"If we see slight improvements in economic data, it could play into the short-term recovery story and we can continue with the perception of a bear-market rally."
(Additional reporting by Tamawa Desai, editing by Victoria Main)