* Yen rallies, dollar index edges higher as stocks slide
* Dollar rises vs euro for fourth straight session
* Aussie down as CPI dents view of bigger rate hike
* U.S. new home sales fall, lowers risk appetite (Updates prices; adds quote, details, changes byline)
By Wanfeng Zhou
NEW YORK, Oct 28 (Reuters) - The U.S. dollar and Japanese yen strengthened on Wednesday as concerns about a global economic recovery and falling stock prices revived safe-haven demand for both currencies.
A report showing an unexpected fall in U.S. new home sales for September offset earlier solid durables goods data and renewed worries about the health of the housing sector.
A deterioration in risk appetite also sent higher-yielding, commodity currencies sharply lower. The Australian dollar fell 2 percent, pressured partly by Australian inflation data, which suggested the country's central bank was unlikely to tighten interest rates sharply.
"We've had a pretty rough run in the stock market in the last few days," said Ronald Simpson, director of currency research at Action Economics in Tampa, Florida.
"The data recently has been kind of mixed," he added. "Overall, I think the short-dollar trade is getting very crowded and we're going to see some unwinding of it."
New single-family home sales fell 3.6 percent to a 402,000 until annual pace from a downwardly revised 417,000 units in August. Analysts polled by Reuters had expected sales to rise to a 440,000 unit pace.
"The (housing) number was surprisingly weak. I think that is going to add to the trend that we've seen recently where investors are questioning the robust pace of economic recovery going forward," said Joe Manimbo, currency trader at Travelex Global Business Payments in Washington.
"That has benefited the dollar and helped to revive its safe-haven appeal."
In early afternoon trading, the ICE Futures dollar index, a measure of the greenback against a basket of six other currencies, was up 0.3 percent at 76.369.
The dollar was down 1.2 percent at 90.65 yen, retreating from a one-month high of 92.33 yen hit on electronic trading platform EBS the previous day.
The euro fell 1.8 percent to 133.52 yen and was down 0.6 percent at $1.4726. It was the fourth straight day the dollar gained against the euro.
The Australian dollar tumbled 2 percent against the greenback to US$0.8984.
Australian consumer price inflation rose more than expected last quarter, yet the increase was not considered alarming enough to justify a more aggressive tightening in interest rates.
Overnight interest rate swaps markets showed investors are now looking for no more than a 25 basis point rate rise at the Reserve Bank of Australia's meeting next week.
"For all of its stern rhetoric of late, let's not forget that the RBA still needs reason to lift rates in this deflationary environment even when growth appears locally robust," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.
The New Zealand dollar fell in sympathy with the Aussie dollar, trading 1.9 percent lower at US$0.7290.