The yen fell back as European equity markets shrugged off yesterday's slump on Wall Street, prompting a revival in risk aversion. Yesterday, US equities fell sharply, pushed down by a 3.2 pct fall in the S&P/Case-Shiller house price index during the second quarter - the biggest drop since it began in 1987. The losses were then exacerbated by the release of the Federal Reserve's minutes to its August 7 rate-setting meeting which dented expectations that a September rate cut is on the cards. The minutes indicated that the deterioration in financial conditions might need a "policy response" but that the Fed is still concerned about inflation pressure. However, while Asian equities followed Wall Street lower most European bourses are trading in the black. "Following 2 pct losses for stocks in New York yesterday, there has been some degree of recovery in Europe today - European bourses were into modestly positive territory whilst the yen-crosses were enjoying a degree of stabilisation after suffering broad based losses through to the Tokyo afternoon," said Neil Mellor, currency strategist at Bank of New York. This has pushed the yen down as investors make tentative steps back to engaging in the risky carry trade - where investors sell low-yielding currencies such as the yen to buy higher-yielding ones elsewhere. With no US data due this afternoon, how equities fare on Wall Street is likely to determine whether the rise in risk appetite can be sustained. Meanwhile the dented rate expectations have pushed the dollar lower against the euro, which brushed off a weak German consumer sentiment survey. The GfK market research institute said its consumer climate index for Germany is forecast to fall to 7.6 points in September from 8.5 points in August, which was revised down from 8.7 points, well below expectations for a reading of 8.5. Finally the turnaround in sentiment has kept the the pound well-supported above 2 usd, despite diminishing expectations that the Bank of England will raise interest rates again this year. "European equity markets are pretty much all in the black and the lack of fresh domestic factors appears to have played into the pound's hand," said Peter Stoneham at Thomson IFR Markets.