* Swiss franc hits record versus euro (Adds quote, details, updates prices)

By Wanfeng Zhou

NEW YORK (Reuters) - The U.S. dollar rose againstmost major currencies but fell to a 15-year trough versus theyen Tuesday as renewed concern about the health of Europeanbanks sparked aversion to risk.

World stocks retreated and the euro weakened broadly aftera Wall Street Journal report said that recent stress tests ofEuropean banks sector underestimated some lenders' holdings ofpotentially risky government debt.

The yen was also bolstered after comments by Bank of JapanGovernor Masaaki Shirakawa increased speculation that Japan wasnot preparing to act to stem the yen's strength in the nearterm.

"Equity is the quickest reflection of overall marketconfidence, and I will say that market confidence remains low,"said Firas Askari, head of FX trading at BMO Capital Markets inToronto. "So you are seeing a renewed, somewhat flight toquality and the U.S. dollar is bid across the board."

In late New York trading, the euro slipped 1.4percent to $1.2689. It had earlier hit a session low of$1.2682, according to electronic trading platform EBS, well offa three-week high of $1.2920 hit on EBS Monday

Worries about the banking sector saw yield spreads betweenperipheral euro zone government bonds and their Germancounterparts -- considered the safest in the euro zone --widen, with Portuguese and Irish spreads in focus.

Traders said the focus was turning to significant optionexpiries Thursday, when an estimated 1 billion euros are setto roll off at $1.2600.

A spike in risk aversion boosted the Swiss franc, pushingthe euro 1.6 percent lower to 1.2818 francs. The pairhit a record low of 1.2812 francs, according to Reuters data.The dollar was down 0.2 percent at 1.0100 francs.

US DOLLAR BELOW 84 YEN

Against the yen, the dollar hit a 15-year low of 83.52 yen,according to Reuters data, and last traded at 83.78 yen,down 0.5 percent. The euro fell 1.9 percent to 106.33 yen.

The Bank of Japan's Shirakawa said monetary authoritiescould not control forex rates, increasing speculation thatJapan was not preparing to act to stem the yen's strength atthe moment.

Shirakawa "has essentially ruled out intervention in thenear term," CitiFXWire analysts said in a client note, addingthat the statement helped to encourage yen bulls.

Shirakawa's comments followed the BOJ's decision to holdoff from additional monetary policy easing.However, Japanese Finance Minister Yoshihiko Noda Tuesdaysaid the government would take firm action on currencies whenneeded, saying recent moves were clearly one-sided.

Ashraf Laidi, chief market strategist at CMC Markets inLondon said expectations that incumbent Prime Minister NaotoKan will stave off a leadership challenge by rival Ichiro Ozawaalso helped lift the yen

"The latter has shown vocal support in favour ofyen-supressing intervention," he said.

Short of active currency intervention, the yen couldcontinue pushing toward its all-time high of 79.75 set in April1995 should equities stay weak, analysts said, though they saidthe currency's upside momentum is weakening.

Data from the Commodity Futures Trading Commission lastFriday showed net long yen positions fell to 49,904 from 51,069contracts in the week ended Aug. 31. Total long yen positionsalso dropped.

Andrew Wilkinson, senior analyst at Interactive BrokersGroup in Greenwich, Connecticut, noted higher impliedvolatilities for December yen put options relative to calls,suggesting investors are bidding more to buy puts -- which givethe buyer the right, but not the obligation, to sell an asset.

"It would indicate to me that option investors are lookingfor more of a pullback in the yen than they are for a rally,"Wilkinson said. (Additional reporting by Nick Olivari; Editing by LeslieAdler)