* Yen edges down vs euro, dollar as Tokyo stocks gain
* Stock gains warm investor appetite for risk
* White House, Democrats in tentative auto bailout deal
By Shinichi Saoshiro
TOKYO, Dec 10 (Reuters) - The yen edged down against the dollar and euro on Wednesday as Japanese shares extended gains on news of a tentative agreement to bail out U.S. automakers, warming investors' appetite for risk.
Tokyo's Nikkei share average rose 2.7 percent by late afternoon on Wednesday, brushing aside a slip on Wall Street and soft machinery orders data at home.
Gains in the Nikkei and the MSCI index of Asia-Pacific stocks outside Japan accelerated after officials said the White House and congressional Democrats reached an agreement in principle on a $15 billion proposal for bailing out U.S. automakers.
Democrats have arranged to have the House of Representatives vote on a bill as early as Wednesday and send it to the Senate for consideration.
"I wonder how this will play out. Will this really pass?" said a trader for a European bank. "But at this point it's leading to short-covering in equities," the trader said.
Risk aversion has been a key factor driving the currency market.
Gains in assets perceived to involve more risk, such as stocks, have helped higher-yielding currencies like the euro, while stock market downturns have tended to drive investors to low-yielding currencies like the yen.
The dollar rose 0.5 percent from late U.S. trading on Tuesday to 92.54 yen, while the euro advanced 0.8 percent to 119.83 yen.
The dollar also gained against the yen due to buying by Japanese importers, market players said.
"Japanese importers' demand buoyed the dollar against the yen. The euro also gained against the yen on the back of the dollar's strength," said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland.
Traders suggested that the relative calm in the currency markets in the last few days was indirectly supporting the euro.
"The uncertainties that have been dogging the market are being removed one by one," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank.
"Equity markets are bottoming out. Measures by governments to help economies are also being seen in a positive light. All these factors have helped reduce market volatility," Inoue said.
The euro had risen to its highest level against the dollar since late November this week, only to give back gains on a subsequent loss of momentum in equities and grim euro zone economic data.
On Wednesday, the euro climbed 0.3 percent to $1.2946.
The higher-yielding Australian dollar, widely referred to as a gauge for risk appetite, advanced 0.6 percent to $0.6597.
The Aussie also gained 1.0 percent to 61.04 yen. (Additional reporting by Masayuki Kitano; Editing by Michael Watson)