NEW YORK -- The U.S. dollar firmed against the yen, while higher-yielding currencies such as the Australian and New Zealand dollars gained Tuesday, benefiting from a modest increase in risk appetite as most stock markets around the world rose.

Wall Street shares are set for a higher open, with investors hoping new Treasury Secretary Timothy Geithner will act quickly to ease the impact of the nation's worst downturn in decades.

Risk demand further improved after Japan launched a $16.7 billion scheme to buy shares in firms whose future has been threatened by the financial crisis. That weighed on the yen but sent Tokyo's benchmark Nikkeiindex soaring nearly 5 percent on the day.

"We're seeing a slight increase in risk appetite as most stock markets have risen and therefore we're seeing dollar/yen gain a little bit," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

"Japan's action earlier in the day had contributed to some risk-taking, but investors are still cautious. I wouldn't put too much into today's lower risk aversion, because risk appetite can change overnight."

In early New York trading, the dollar rose 0.2 percent against the yen, wile the euro was up 0.3 percent versus the yen at 117.48. Earlier, the euro hit a high of 119.45, a level last reached on Jan. 19, according to electronic trading platform EBS.

The low-yielding yen often takes its cue from perceived swings in investors' risk appetite and has tended to fall against higher-yielding currencies when risk tolerance increases.

VOLATILE TRADE, FED STARTS TWO-DAY MEETING

The euro rose to a new one-week high at $1.3330, EBS data show, after a surprise rise in German corporate sentiment, and last traded at $1.3228, up 0.5 percent.

The euro extended gains versus the dollar after data showed a plunge in U.S. single-family home prices in November. See

Trade was volatile as short-term players took some profits after the euro had gained sharply since the start of the week as a rise in financial shares had boosted risk sentiment.

"One spot of good news cannot make up for headlines showing dire economic conditions," said Geoffrey Yu, currency strategist at UBS, noting that economic and corporate data for the final quarter of 2008 are showing extremely weak readings.

Data from Germany's Ifo economic research institute showed its index for business climate index rose to 83.0 in January from an upwardly revised 82.7 in December, rising for the first time in eight months.

Dovish comments from a European Central Bank official slightly pressured the euro. ECB Governing Council member Guy Quaden was quoted as saying in a Belgian newspaper on Tuesday that the ECB is probably prepared to cut interest rates again.

"We are probably ready to cut further. But I am launching an appeal to the banks to pass on the impact on rates that they impose on investors and consumers," he was quoted saying at an event on Monday.

Sterling rose against the dollar, climbing 0.8 percent to $1.4072. The Australian dollar rose 0.7 percent to US$0.6639, while the New Zealand currency was up 0.5 percent at US$0.5289.

In the meantime, the Fed begins its two-day monetary policy meeting on Tuesday. With rates already near zero, Fed policy-makers are expected to say they will keep rates low for some time, and traders are waiting to see if they announce plans to purchase U.S. government bonds in a bid to further ease strained credit conditions.