Aug. 6 (Bloomberg) -- The Australian and New Zealand dollars fell a second day against the yen as global stocks slid on concern U.S. mortgage losses will worsen, deterring investors from buying higher-yielding assets funded by loans in Japan.

New Zealand's dollar has weakened 7.5 percent versus the yen in the past month, the most among the 16 most-active currencies, and Australia's retreated 4.8 percent, as traders pared positions in so-called carry trades. Asian shares declined today after The Standard & Poor's 500 Index fell the most in five months in New York on Aug. 3.

``The Australian and New Zealand dollars will underperform during weak equity markets,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``There is definitely an element of risk aversion with the equity markets looking very sick.''

The Australian dollar fell 0.4 percent to 100.51 yen at 1:04 p.m. in Sydney from 100.90 yen late in New York Aug. 3. Against the U.S. dollar, it was little changed at 85.39 cents.

New Zealand's dollar slid 0.7 percent to 89.19 yen and touched 88.61 yen, the weakest since May 31. Against the U.S. dollar, the currency slid 0.4 percent to 75.78 cents.

Samuel Molinaro, chief financial officer at Bear Stearns Cos., triggered equity losses after he said the current crisis in fixed-income was the worst ever. The New Zealand dollar has dropped 7.9 percent and Australia's currency 5.9 percent since June 22 when Bear Stearns said two of its hedge funds that made bets on subprime loans collapsed.

The comments pushed the S&P 500 down 2.7 percent and helped the Morgan Stanley Capital International Asia Pacific Index to weaken 1.3 percent today. The U.S. housing market is mired in the worst slump since 1991 as banks and brokerages see loan demand dry up, securities backed by mortgages decline in value and investors avoid buying debt to finance takeovers.

`Reducing Risk'

``The Bear Sterns comments really put subprime jitters to the forefront again and the market's now all about reducing risk,'' said Tony Allen, currency trader at ANZ National Bank Ltd. in Wellington. ``Everyone's getting out of long kiwi positions as they try to reduce risk on all fronts.'' A long position is a bet a currency will rise.

New Zealand's official cash rate of 8.25 percent is the highest after Iceland's among countries with the top credit rating at Moody's Investors Service. Australia's rate is at a six-year high of 6.25 percent and will be increased at the next policy meeting on Aug. 8, according to 25 of 27 economists surveyed by Bloomberg News.

Japan's 0.5 percent overnight lending rate is the lowest of any major economy. The differential has helped the New Zealand dollar gain 25 percent and Australia's 14 percent against the yen in the past 12 months. Brazil's real was the second-biggest gainer in that time, rising 18 percent.

More Rate Rises

The Australian dollar was likely to remain supported by the prospects of higher rates, said Tobias Davis, a senior currency dealer at Custom House Global Foreign Exchange.

The odds the Reserve Bank of Australia will raise rates a quarter-percentage point this week are at 72 percent, according to an index calculated by Credit Suisse Group, based on trading in interest-rate swaps.

``For the interim the Aussie will be fairly strong,'' said Davis in Sydney, referring to the Australian dollar by its nickname. ``Looking beyond Wednesday we will start to take into account any expectations of a rate rise, maybe in November.''

Australian government bonds gained. The yield on the nation's 10-year note fell 4 basis points to 5.91 percent. The price of the 6 percent bond maturing in December 2017 rose 0.282, or A$2.82 per A$1,000, to 100.642. New Zealand's 10-year yield was little changed at 6.40 percent. A basis point is 0.01 percentage point and bond yields move inversely to prices.

To contact the reporter on this story: David McIntyre in Sydney at dmcintyre2@bloomberg.net.

Last Updated: August 5, 2007 23:17 EDT