(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Feb 28 (Reuters) - The Japanese yen hit a seven-week high against the U.S. dollar and was on track for its largest daily gain since May 2017 as investors nervous about the spread of the coronavirus in the United States piled into the safe-haven currency.
Hopes that the outbreak can be contained in China have been replaced this week by worries that infections are spreading around the globe. Measures to contain the virus have wreaked havoc on supply chains, the world's economy and financial markets.
Equity markets have tumbled, with the S&P 500 on course for the worst performance in a week since the 2008 financial crisis, as investors dumped riskier assets and piled into safe-haven currencies. That sent the Japanese yen to a seven-week high of 107.77 versus the dollar, last trading up 1.22%.
"The yen is significantly stronger from where it was even last week, when I was hearing people saying that the yen wasn't a safe-haven anymore. We're now back to appropriate levels," said Mark McCormick, global head of foreign exchange strategy at TD Securities.
McCormick said one additional factor supporting the yen could be the fact that Japan's public pension funds have been rebalancing assets.
"I think it's pretty clear that the (Japanese Government Pension Investment Fund) is trading ahead of the announcements of their weights, which if you think about what they've done over the past five years, they've created an allocation that leans much more towards global equities, global credit, global fixed income - which in this environment would see dollar-yen rally as they're pushing some of their flows outside of Japan."
Traders were also offloading currencies closely associated with a possible recession, pushing the Australian dollar, much reliant on China and global economic growth, 1.07% lower to $0.650, its lowest in 11 years.
Apart from jumping into safe-haven assets, money managers also tend to reverse out of so-called carry trades in tumultuous times. In carry trades, investors borrow in low-yielding currencies like the euro - where interest rates are below zero - to invest in higher-yielding ones.
With investors pulling out of higher-yielding and riskier currencies, that has helped the euro soar to a 3-1/2-week high of $1.105. It was last roughly flat at $1.100.
The U.S. dollar index was last down 0.093% to 98.349. Against the pound the dollar was down 0.79% to 1.278.
(Reporting by Kate Duguid in New York and by Olga Cotaga in London; Editing by Diane Craft)