* Yen slips broadly after Wall Street rise
* Asian stocks up, risk aversion eases, helping high-yielders
* Euro rebounds on short-covering after ECB rate cut
* ECB's Trichet says not thinking about zero rates
* U.S. government aid for Bank of America boosts Nikkei
By Satomi Noguchi
TOKYO, Jan 16 (Reuters) - The yen slipped broadly on Friday after U.S. stocks rose on optimism about a fresh stimulus package, and its retreat against the euro helped the single currency extend a rebound from a five-week low versus the dollar.
Investors' risk appetite recovered slightly after Wall Street stocks snapped a six-day losing streak, buoyed by hopes that the U.S. government would provide fresh capital to crisis-hit banks.
Emerging stability in regional equity markets, helped by U.S. government aid for Bank of America, further eased investors' risk aversion and supported higher-yielding currencies such as the Australian and New Zealand dollars against the yen.
Tokyo's Nikkei share average extended gains after officials said Bank of America will receive $20 billion in fresh government cash and a federal backstop against $118 billion of bad assets to help the bank absorb Merrill Lynch & Co.
"The market focus at least for the next week is how solid the stock market recovery this time is. That means the yen may move defensively against the dollar and the euro meanwhile," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Bank.
The U.S. Senate rejected a bid to block the release of the second half of a $700 billion bailout programme, handing an early political victory to President-elect Barack Obama, who will be sworn in next Tuesday.
Earlier, Democratic leaders in the House of Representatives unveiled an $825 billion tax cut and spending bills they hope will help Obama reverse the economic slump, offsetting fears of soaring losses at the top three U.S. banks.
The political moves along with a recovery in U.S. equity markets improved market sentiment and prompted investors to cut safety bids in the yen, traders said.
"Some market players are thinking of closing their broad yen-buying positions before Obama is sworn in as U.S. president next week," said a trader at a Japanese bank.
But investors were still wary as the outlook for the global economy remains clouded.
"As for today, the currency market seems to be reacting to what is perceived to be positive news. But the market remains unstable and will likely go through times of pessimism and optimism," said Satoshi Okagawa, head of the FX forward trading group at Sumitomo Mitsubi Banking Corp.
The euro climbed 1.8 percent from late New York trade to 119.97 yen, bouncing further from a six-week low of 116.24 yen touched the previous day on trading platform EBS.
The euro rose 1.2 percent to $1.3272, above a five-week low of $1.3025 hit on Thursday after the European Central Bank cut rates by a half percentage point to 2 percent, matching a record low rate.
The dollar gained 0.6 percent to 90.36 yen, after hitting the day's high of 90.58 yen on EBS following the report of aid for Bank of America.
The New Zealand dollar rose 2.8 percent against the yen to 49.57 yen, gaining ground from more than 7-year lows near 47 yen struck the previous day.
STILL EDGY ON EURO
Traders said the euro may hold firm near-term on further short-covering ahead of the U.S. long weekend. It struck a five-week low versus the dollar after the ECB cut rates and left the door open to further borrowing cost reductions in the months ahead.
But they said it may struggle to regain solid ground as investors worry that the ECB is moving too slowly in lowering rates to combat the rapid deterioration in the euro zone economy.
ECB President Jean-Claude Trichet said there is more room for interest rate cuts but that the central bank was not thinking of adopting a zero rate policy, cementing market views that the ECB will probably hold rates steady in February before re-assessing in March.
Trichet's comments were in an interview with Japanese public broadcaster NHK recorded after Thursday's board meeting and broadcast on Friday. (Additional reporting by Kaori Kaneko; Editing by Michael Watson)