* Dollar, yen higher after China tightening move * Euro hits 9-month low, dollar 1-month low versus yen * S&P cuts outlook on JGBs to negative from stable (Updates prices, adds quotes; changes byline, changes dateline, previous LONDON) By Wanfeng Zhou NEW YORK, Jan 26 (Reuters) - The dollar and yen rose on Tuesday after China implemented a planned increase in required reserves for some banks, prompting investors to close trades funded by the two currencies. The news from Beijing weighed on global stock markets on concern China may take further steps cool its blistering economic growth, thus sapping investor confidence about a global economic recovery, "The more immediate threat to risk appetite continues to be the Chinese story," said Ashraf Laidi, chief market strategist at CMC Markets in London. "The market interpreted that as risky and it pushed up the dollar and yen. Any rebound in the pound and euro was limited." In early trading, the ICE Futures U.S. dollar index, a measure of the greenback against a basket of six major currencies, rose 0.5 percent to 78.596 <.DXY>. China's central bank ordered banks that need to raise their reserve ratios to implement the change on Tuesday, banking sources said. [ID:nSGE60P039]. The dollar was down 0.7 percent at 89.63 yen , after hitting a more than one-month low at 89.39 yen, according to Reuters data. The euro traded 1.3 percent lower at 126.05 yen , off a nine-month intraday low of 125.96 yen. The yen had earlier trimmed gains after ratings agency Standard and Poor's cut its outlook on Japanese sovereign debt to negative from stable. But it quickly recovered on the view that only a small proportion of Japanese government bonds are held offshore. [ID:nTKF106816] "It would be a very different story if a lot of foreigners held JGBs (Japanese government bonds). It is another reminder that the fiscal side of the story continues to rot in many of the developed economies and I think that's at the forefront of investors' minds right now," said HSBC director of currency strategy Paul Mackel. Japanese deputy finance minister Yoshihiko Noda pledged fiscal discipline following the S&P announcement. Finance Minister Naoto Kan echoed those comments, saying Japan must show it has a roadmap to restore fiscal health. [ID:nTKF106818] The euro fell 0.6 percent to $1.4062, despite a survey showing German business sentiment rose more than expected in January to its highest level in 1-1/2 years. See [ID:nLDE60P0PG] The dollar hit a session high versus the euro after weaker-than-expected U.S. home prices dented risk appetite. [ID:nN26233232]. Sterling tumbled against the dollar after data showed Britain only just emerged from recession at the end of 2009, suggesting any UK monetary tightening was still a long way off. [ID:nLDE60P0WS] The pound was last at $1.6114, down 0.8 percent. The higher-yielding Australian and New Zealand dollars fell more than 1 percent versus the dollar. "This could pan out to be more of a sustainable period of risk aversion and a pause in the global recovery scenario," said SEB currency strategist Carl Hammer in Stockholm. "This will weigh on commodity currencies as investors move out of pro-cyclical and into pro-defensive currencies," he said.

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