* Yen holds firm near 105.77 as investors seek safety
* Aussie falls again, heads towards decade low
* Analysts say Italian political boost unlikely to help euro
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
By Tommy Wilkes
LONDON, Aug 28 (Reuters) - The Japanese yen held onto recent
gains on Wednesday as worries about a global economic downturn
encouraged investors to buy the safe-haven currency, while
broader forex markets were largely quiet as investors watched
from the sidelines.
Two-year U.S. government bond yields rose further above
10-year yields, a deepening of the so-called inversion of the
yield curve that many see as a harbinger of a recession.
Investors worry the trade conflict between the United States and
China could tip the world into an economic slowdown.
The yen stood at 105.765 yen per dollar JPY=EBS , unchanged
on the day but close to the 7-month high of 104.46 yen hit on
Monday.
Analysts said the dollar's recent strength also looked
overdone.
"The ongoing escalation of trade tensions between the U.S.
and China combined with the unpredictability President Donald
Trump brings to the table leaves market participants on edge
over the possibility of direct intervention," MUFG analysts
said. "This possibility is likely helping to dampen demand for
the U.S. dollar at these higher levels."
The dollar index, which measures the greenback against a
basket of currencies, rose marginally to 98.042 .DXY .
Elsewhere, weaker risk appetite weighed on the Australian
AUD=D3 and New Zealand NZD=D3 dollars, which tend to perform
well when investors buy into riskier assets.
The Aussie has been on the back foot since Reserve Bank of
Australia (RBA) Deputy Governor Guy Debelle said on Tuesday that
a weakening the currency was supporting the economy and that
further falls would be beneficial. The Aussie had fallen to a decade-low of $0.6677 early in
August. On Wednesday it stood at $0.6738, down 0.2% on the day.
The Chinese yuan stood at 7.1682 CNH=EBS , not far from the
record low of 7.187 it touched on Monday.
Euro/dollar was little moved, trading at $1.1091 EUR=EBS
with little in the way of new economic data scheduled for
Wednesday.
Analysts at ING said positive news in Italy, where the
5-Star Movement and the opposition Democratic Party appear on
the verge of agreeing a governing coalition, would not help the
euro significantly.
"Instead the escalation in trade wars merely looks to extend
the slow-down in manufacturing, depressing European growth still
further. Like all activity currencies, the EUR looks soft and
could break down to new lows at any time. EUR/USD support at
$1.1025/50 looks vulnerable," they said.
The pound traded below a one-month high of $1.2310 GBP=D4
scaled overnight.
Sterling rallied on Tuesday after Britain's opposition
Labour Party leader Jeremy Corbyn said he would do everything
necessary to prevent Britain leaving the European Union without
a divorce deal.