* Yen stands tall vs peers as trade woes stoke risk aversion
* Focus on outcome of pivotal US-China talks starting Thursday
* Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh (Adds quote, graphic, updates prices)
By Tom Finn
LONDON, May 9 (Reuters) - The Japanese yen surged to a three-month high against the dollar on Thursday as investors sought out the safe-haven currency, fearing the U.S.-China trade conflict will escalate.
Two days of trade talks begin in Washington on Thursday, and traders are waiting to see whether Chinese and U.S. negotiators can salvage a deal to prevent more U.S. tariff increases.
Currency moves this week in response to the latest trade hostilities have been fairly muted, but Thursday’s jump in the yen — which tends to attract demand in times of strife — suggested investor nerves are fraying.
The main casualties have been the Australian dollar , a proxy for Chinese economic prospects, the U.S. dollar and the offshore Chinese yuan.
The yuan on Thursday fell half a percent to a four-month low of 6.8503 and was headed for its worst four-day decline in a year.
“The Chinese yuan really is the world’s most important currency,” said Societe Generale analyst Kit Juckes. “It isn’t the most traded but is an anchor of stability for all markets and if that anchor is dislodged it will lead the dollar and yen higher.”
In the past, the dollar has benefited from an increase in trade worries. But U.S. President Donald Trump’s latest threat to raise tariffs on Chinese imports has seen the yen gain in recent days.
It rose 0.3 percent against the dollar to 109.6 yen, a three-month high, taking its gains to more than 1 percent so far this month.
According to the latest Commodity Futures Trading Commission data, speculators have further raised their net long dollar bets, including those against the yen.
Trump said on Wednesday that China “broke the deal” reached in talks with the United States, and vowed not to back down on raising tariffs or imposing new ones unless Beijing “stops cheating our workers”.
Reporting by Tom Finn; editing by Angus MacSwan, Larry King