FOREX-Yen near November 2014 highs, Swiss franc gains as stocks struggle

* Safe-haven yen and Swiss franc gain as stocks drop

* Euro weakens, hurt by worries over banking sector

* Implied volatility in euro/dollar surges

By Anirban Nag

LONDON, Feb 9 (Reuters) - The yen rose on Tuesday to its highest against the dollar since November 2014, as a sell-off in global stocks and worries about Europe's banking sector underpinned demand for safe-haven currencies.

The euro underperformed. Although it has enjoyed a good correlation with safe-haven assets and currencies since last August, it dropped to its lowest in nearly two weeks against the yen and the Swiss franc..

Europe's banking index fell 1.3 percent and yields on southern European government bonds rose, keeping gains in the euro limited. The euro was also hurt in part by weak German industrial output, which fell unexpectedly in December .

The yen, though, was in the limelight for the second day, gaining around 6 percent since the start of February against the dollar. The rise has undermined plans by the Bank of Japan, which wants to generate inflation through negative interest rates and a weaker currency.

"The BOJ must be disappointed, given that just two weeks after it announced negative rates, the currency has risen 6 percent and offsetting the impact of almost all its actions," said Niels Christensen, FX strategist at Nordea. "As long as global stocks remain under pressure, we expect the yen to gain."

The dollar was last at 115.10 yen, down 0.7 percent, after dropping as low as 114.205 in Asian trade. The euro was down 0.5 percent at 129 yen.

The flight to safety helped the yield on the benchmark 10-year Japanese government bond turn negative for the first time, sending it as low as minus 0.035 percent .

The dollar fell to its lowest since mid-December against the Swiss franc, trading at 0.9801 francs and down 0.7 percent on the day.. The franc was also 0.5 percent higher against the euro, trading at 1.09965 francs per euro.

In the options markets, implied volatility for euro-dollar options surged while demand for derivatives betting on a weaker euro over the next few months gathered pace.

Morgan Stanley (Xetra: 885836 - news) said in a note that the region's banks were vulnerable to negative interest rates and that was likely to hold the euro back.

"Parking free liquidity with the ECB to weather the storm has become costly due to the ECB's negative interest rates policy," Morgan Stanley analysts said in a note, adding the central bank may have to increase its monetary base again.

"Since the ECB may not find a domestic destination for the additional liquidity initially, euro-denominated funds could make their way out of the eurozone, weakening the euro." (Additional reporting by Lisa Twaronite in Tokyo; Editing by Keith Weir)