TOKYO -- Risk aversion kept the dollar and the yen firm on Thursday, as global recession worries and credit jitters fuelled by uncertainty over the struggling US auto industry led investors to cut risk assets and repatriate funds.

The dollar and euro were off one-week lows against the yen hit on Wednesday, but traders said the yen remained firm overall as investors were likely to keep unwinding carry trade positions where they had bought high-yielding assets financed by the low-yielding yen.

The dollar may be vulnerable against the yen due to deepening concerns about US corporate earnings and expectations the Federal Reserve would cut interest rates from the already low 1.0 percent at its meeting next month, traders said.

But the US currency was likely to benefit from general risk aversion triggered by falling stocks and growing uncertainty over whether US automakers, including General Motors, will win emergency government loans. The top three US carmakers have warned that bankruptcy for one or more would lead to massive job losses.

"The focus is on GM's fate, and mounting credit market worries could accelerate investors' moves to repatriate overseas investments, supporting the dollar," said Hiroshi Yoshida, a trader at Shinkin Central Bank.

"The continuing risk aversion means investors will sell assets for cash, and such position unwindings will also help strengthen the yen against a broad range of currencies," he said.

Yoshida said the yen's rise was not likely to be as sharp as that of last month, and an immediate challenge of the 90 yen mark was unlikely in the near-term. "But the yen is poised for a gradual uptrend and a rise beyond 90 yen is possible over the medium-term."

The dollar was up 0.1 percent at 95.83 yen, slightly above a one-week low of 95.66 yen hit on Wednesday.

The euro inched up 0.2 percent against the yen to 119.80 yen, also a tad above a one-week low of 119.50 yen hit on Wednesday.

The single currency was little changed at $1.2500.

The Nikkei stock average extended its falls to more than 4.0 percent, hitting a three-week low below 8,000, as the yen's strength hit exporters.

Japan's exports fell as expected in October, logging the first annual drop in four months, as the global economic slowdown took its toll on overseas demand for Japanese goods.

Market reaction was muted as recent data has already shown that Japan, along with the euro zone, entered a recession in the third quarter.

US and European stocks fell to their lowest levels in 5-½ years on Wednesday, as prospects faded for a Washington bailout of the auto industry and data showed US consumer prices dropped at a record pace in October.

The dollar slipped versus the yen on Wednesday, as worries over the US auto industry and the record slide in US consumer prices fanned fears of a deeper recession.

Minutes from the Fed's meeting last month on Wednesday added further to the bleak global economic view, as the central bank said US economic data in the run-up to the December meeting would show significant weakness and could well mean that another rate cut may be needed.