LONDON: The Japanese yen rallied sharply against the euro and the dollar on Wednesday as fresh worries about the economy spurred demand for the safe-haven Japanese unit, dealers said. Market jitters grew ahead of a summit of leaders from the Group of Eight (G8) economic powers that was due to get under way later Wednesday in Italy. In London late morning trade, the dollar fell to 94.25 yen from 94.81 yen in New York late on Tuesday, after earlier touching 94.08 -- a level last seen in May. The European single currency sank to 130.93 yen from 132.06 yen, having earlier hitting 130.42. The euro meanwhile fell to 1.3911 dollars from 1.3926 dollars late on Tuesday. "The yen rally has extended, driven by the liquidation of long-risk asset positions," said economist Lee Hardman at The Bank of Tokyo-Mitsubishi UFJ. "Investors are becoming increasingly uneasy over the outlook for both the global economy and corporate earnings." The Australian dollar and the British pound, seen as sensitive to economic swings, also lost ground against the Japanese currency, which is considered a relatively safe investment during times of economic uncertainty. Doubts over a US recovery have resurfaced after a top White House economic adviser suggested that Washington may need a second stimulus package. Traders were turning their attention to the G8 summit in Italy where leaders were expected to discuss efforts to tackle the global economic crisis.

China had said last week that it wanted a broader global monetary system, sparking speculation that G8 leaders might discuss the dollar's status as an international reserve currency, potentially weighing on the greenback. "China fears its massive holdings of US debt... are increasingly at risk alongside a falling dollar," said NAB Capital strategist Spiros Papadopoulos in a note to clients. "But a quick glance at the agenda makes it pretty clear there will be little time for serious debate on the creation of a new global reserve currency," he added. Chinese President Hu Jintao cut short his trip to Italy to return to China because of unrest in the northwest Xinjiang region, leaving State Councillor Dai Bingguo to take part in the summit on his behalf. In trading here on Wednesday, the euro was changing hands at 1.3911 dollars against 1.3926 dollars late on Tuesday, 130.93 yen (132.06), 0.8639 pounds (0.8625) and 1.5159 Swiss francs (1.5157). The dollar stood at 94.25 yen (94.81) and 1.0912 Swiss francs (1.0879). The pound was at 1.6081 dollars (1.6141). On the London Bullion Market, the price of gold fell to 920.30 dollars an ounce from 924 dollars an ounce late on Tuesday.