The yen strengthened on Friday as jittery investors took cues from falling stock markets to continue a move out of relatively risky carry trades funded by cheap borrowing in the Japanese currency.

European shares fell 1 percent to two-month lows, with investors selling bank stocks on continued worries about their exposure to credit problems.

That translated to lower risk appetite in the currencies.

If you look at equity markets they are still under pressure, equity volatility is still peaking, so the theme is still that risk appetite currencies are under pressure, said Sebastien Galy, FX analyst at Dresdner Kleinwort.

But we are in normal broad ranges... The key level (in dollar/yen) is just below 110 and I think it will take some really bad news to break through that, he added.

By 1143 GMT, the dollar was down 0.1 percent at 110.25 yen, edging down towards 18-month troughs of 109.10 set earlier this week.

The euro was down 0.35 percent at 160.85 yen.

The single currency also weakened versus the dollar, easing to $1.4596, with traders citing pre-weekend position adjustment and break through stop-loss levels around the $1.4600 area.

Heightened risk aversion added to selling pressure on sterling, which had already been hit this week by growing expectations of a near-term Bank of England rate cut.

The pound hit a 4-1/2 year low versus the euro on Friday, and a near four-week low against the dollar.

G20, FLOWS IN FOCUS

The meeting of Group of 20 finance ministers and central bankers in Cape Town at the weekend is not expected to yield a joint statement on recent currency moves, such as the strength of the euro or the weakness of the dollar.

However investors are likely to pay attention to any comments from individual policymakers on the issue.

In a quiet day for data, the focus will be on U.S. investment flows data at 1400 GMT, especially on any signs of troubles in the credit market, financial sector and U.S. housing market dampening foreigners' appetite for U.S. assets.

The concern that the U.S. is failing to attract sufficient foreign capital flows at the current dollar and interest rate levels remains more prevalent than ever, Commerzbank Corporates & Markets said in a research note.

The calendar also features U.S. industrial production for October at 1415 GMT.

(Reporting by Toni Vorobyova)