* Yen hits highest in 7 weeks vs dollar and euro
* Aussie gains after stronger Q2 GDP
* Shanghai shares up, but other regional stocks fall
By Satomi Noguchi
TOKYO, Sept 2 (Reuters) - The yen spiked to a seven-week high against the dollar and euro on Wednesday as renewed fears about the U.S. financial sector made investors cautious about riskier assets.
Most regional shares fell after talk from hedge funds about a possible bank failure dragged Wall Street more than 2 percent lower, encouraging investors to dump higher-yielding currencies initially.
The yen later gave up some of its gains after data showed Australian economic growth for the second quarter was stronger than expected, helping the Aussie recoup its losses versus the yen and the dollar and rise.
The Shanghai stock market rose more than 1 percent and also put a brake on yen buying by short-term players.
"Optimism about an economic recovery had put a lid on worries about the financial sector, but these are reviving as investors now see a greater chance of a slowdown after the policy-led rebound," said the chief FX manager for a Japanese trust bank.
Traders said concerns were building about what happens to the U.S. economy once stimulus effects start to fade, and that is fuelling concerns about the health of the financial sector.
This was prompting investors to sell long positions in risky assets like stocks and higher-yielding currencies, traders said.
"On a day when a green shoot seemed to blossom, an old worry rose to the fore -- concerns about the health of banks," said David Watt, senior currency strategist at RBC Capital Markets. "Safe havens were bid and the rest were offered."
Analysts said September has a reputation for being a bleak month on Wall Street and so far this theory seems to be holding good.
Some believe that after enjoying a good run since March, when the S&P Financials rose more than 120 percent from their lows, a correction in the banking sector was long overdue.
The dollar touched a seven-week low against the yen at 92.51 yen on trading platform EBS, before rebounding to trade at 92.88 yen, down 0.1 percent from late New York trade.
The euro edged lower to $1.4212, having fallen to a two-week low of $1.4177 on EBS the previous session. On the yen, the single currency fell to 131.47, its lowest level since July 15.
The Australian dollar erased earlier losses and gained 0.3 percent to $0.8298 and was also up 0.3 percent at 76.95 yen.
Australia's economy grew at its fastest pace in more than a year last quarter as aggressive policy stimulus drove a revival in consumer and business spending, encouraging investors to think there is still a case of an interest rate hike by year-end. (Additional Reporting by Anirban Nag in Sydney; Editing by Hugh Lawson)