* Yen rises as lower Nikkei average fuels risk concerns
* BOJ eyed, with speculation mounting for a rate cut
* Rebound in high-yielders seen capped as risk wariness stays
* Caution about intervention helps moderate yen gains
By Chikako Mogi
TOKYO, Oct 31 (Reuters) - The yen rose against the dollar and euro as a drop in Tokyo share prices renewed investor concern over riskier assets, while players cautiously awaited the Bank of Japan's policy decision due later in the day.
The weakness in stocks reflected gloomy prospects for the world's economies despite global interest rate cuts -- prospects which weighed on high-yielding currencies, traders said.
The yen was likely to remain supported as investors unwind investments in riskier assets which were funded by the low-yielding yen, traders said.
Traders said the rally in Tokyo shares and the dollar's rise against the yen on news that the BOJ was considering an easing at Friday's board meeting may be too strong for the central bank to ignore.
The BOJ's meeting follows a 50-basis-point rate cut by the U.S. Federal Reserve earlier in the week to cushion an economic downturn.
"The unwinding of risk assets continues to support the yen, which was used to fund such investments," said Takahide Nagasaki, chief forex strategist at Daiwa Securities SMBC.
"The market is currently not willing to sell the yen to look for new investments," he said but added that the yen's rise has been moderated by wariness over the possibility of intervention by authorities.
The European Central Bank and the Bank of England hold their policy meetings next week, and expectations for a large-size rate cut by these central banks following the Fed's move this week were undermining the euro and sterling, he added.
The dollar fell 0.4 percent against the yen to 98.17 yen after rising to a high of 99.13 yen on Thursday. The euro fell 1.1 percent against the yen to 125.85 yen, off a high of 131.05 yen on Thursday.
The euro fell 0.7 percent at $1.2830, down sharply from a high of $1.3300 on Thursday.
The Nikkei average ended the morning down 2.7 percent after rising for three straight days.
Japanese financial markets will be closed on Monday for a national holiday.
"The recovery in stocks has run its course, dragging down all currencies other than the yen," said a senior manager at a European bank.
He said that market players were shifting their focus to extent of a global recession, adding that a recovery in global growth could take a long time as various asset bubbles had burst all at once, including housing, commodities and emerging markets.
"The yen will benefit as a hedging tool," he said.
A senior trader at another European bank said players were looking to sell when a currency recovered, due to concerns about financial market turbulence and economies.
"There are still more potential sellers than buyers in the market," he said.
If the BOJ kept interest rates steady at 0.5 percent, that may trigger a sharp rise in the yen and a further drop in share prices, traders said.
Data on Thursday showed U.S. gross domestic product shrank 0.3 percent in the third quarter, the sharpest contraction in seven years. Economists said details within the report suggested a weak economic performance going forward.
There was limited market reaction to Japanese data released earlier on Friday, including the nationwide core consumer price index, which rose 2.3 percent in September from a year earlier, slipping from a 2.4 percent rise in August. (Editing by Edwina Gibbs)