* Yen jumps on investor risk aversion after WSJ report
* Hits 7-week peak vs euro, 1-month high vs dollar
* Swine flu fears cause investors to cut risky bets
* Flu scare seen damaging global economic recovery
By Satomi Noguchi
TOKYO, April 28 (Reuters) - The yen climbed to a seven-week peak against the euro and a one-month high versus the dollar on Tuesday on growing risk aversion after a newspaper reported that two major U.S. banks may need more capital.
The Wall Street Journal said regulators have told Citigroup and Bank of America Corp they may need to raise more capital based on early results of the government's "stress tests" of lenders. The government is set to unveil the results on May 4.
"While most of the 19 banks that have been tested are expected to show less negative results, Citi and BofA seem to be in a shaky situation, prompting investors to pick up the yen on risk aversion as stocks fell," said Takashi Kudo, a director at NTT SmartTrade.
U.S. stock futures extended their fall after the report, sliding 1.3 percent in Asian trade and helping drag Tokyo's Nikkei share average down 2.7 percent.
The Australian and New Zealand dollars fell sharply against the yen and the dollar on doubts about the potential impact of the flu outbreak on global trade and consumer confidence.
The flu virus has killed up to 149 people in Mexico, and the World Health Organization moved closer on Monday to declaring it the first flu pandemic in 40 years as more people were infected in the United States and Europe.
The flu scare hurt the Mexican peso, which fell to near a one-month low against the dollar after tumbling the previous day to post its worst performance against the greenback in six months. However, peso trading is limited due to thin liquidity in Asian trade.
"Speculative players are betting on views that worries about the spread of swine flu will damage the global economic recovery after seeing stocks related to travel and commodities hit," said a senior currency trader at a Japanese bank. The euro dropped as low as 124.51 yen on trading platform EBS, its lowest since March 12, but later pared some of its losses to 124.75 yen, down 1.1 percent from late New York trade on Monday.
The dollar slid to a one-month low of 95.74 yen earlier but later recovered to 95.81 yen, down 1.0 percent.
Despite sharp moves in the yen, some Tokyo traders were reluctant to place big bets ahead of a series of Japanese public holidays starting on Wednesday.
The euro fell 0.1 percent to $1.3018, in choppy trade above the day's low of $1.2985.
The Australian dollar dipped to 67.14 yen, its lowest in four weeks. The Aussie was also hit by news that global miners had agreed to accept sharp cuts in the iron ore prices that they charge steel makers in China, a major buyer.
The New Zealand dollar briefly fell to 53.17 yen, its lowest since March 20, and was later trading down 2.4 percent at 53.23 yen.
The Aussie and the Kiwi had benefited over the last few months as the market became hopeful that the global recession had bottomed out.
The Mexican peso was quoted around 14.08 per dollar, according to Reuters data, its lowest since the start of this month. (Additional reporting by Kaori Kaneko; Editing by Joseph Radford)