* Sterling plunges more than 1 pct to fresh 1985 lows
* Brexit jitters, market contagion fears are back again
* Safe-haven yen is main beneficiary of rekindled risk aversion
By Lisa Twaronite and Ian Chua
TOKYO/SYDNEY, July 6 (Reuters) - Sterling carved out a fresh 31-year trough on Wednesday while the safe-haven yen soared on heightening fears of the broader impact of Britain's vote last month to exit the European Union.
The pound slid as far as $1.2798 GBP=D4 , breaking through the previous low of $1.3000 set overnight. It was last down 1.2 percent at $1.2867.
The euro jumped as high as 86.26 pence EURGBP=R , its highest since August 2013, and was last up 0.9 percent at 85.76 pence.
Against the resurgent Japanese currency, sterling fell as low as 128.81 yen GBPJPY=R , its lowest since November 2012. It was last down 2.2 percent at 129.61.
The dollar dropped as low as 100.58 yen JPY= , pulling back from Friday's post-Brexit high of 103.40. It was last down 1 pct at 100.72 yen, holding above the June 24 trough of 99.000 touched in the wake of the UK vote when nerves were still raw.
"It's back to double digits for dollar/yen? I think this is a pretty precarious level, and if we break through 100, we should start to hear some rumblings from officials," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.
"I'm sure there are a lot of safe-haven flows into the yen, obviously against sterling, but other crosses like euro-yen, so it's not just a straight yen valuation against any one currency," Wakabayashi said. "It's a difficult market for traders, and I'm sure it's a difficult market for central bankers and policymakers as well."
The euro retreated below 112.00 yen EURJPY=R for the first time in over a week, to a session low of 111.03, though it, too, held above its post-Brexit June 24 low of 109.30. It was last down 1.3 percent at 111.26 yen.
Fears of financial contagion spooked investors and sent them scurrying into the safety of government bonds, which helped push the benchmark 10-year Treasury yield to a fresh record low of 1.345 percent US10YT=RR in Asian trading on Wednesday. The benchmark 10-year Japanese government bond also plumbed a fresh record low of minus 0.275 percent JP10YTN=JBTC .
Rattling markets, three British commercial property funds worth about 10 billion pounds suspended trading this week after the Brexit vote sent asset prices into a tailspin. adding to a growing sense of market instability, shares in Italy's banks, which are suffocating under a pile of non-performing loans, plunged on Tuesday. market will focus on risks building in Europe. Expect headlines surrounding Brexit and Italian banks to drive volatility," analysts at ANZ wrote in a note to clients.
The Australian dollar dropped, though it fared relatively better than some counterparts despite the renewed risk aversion, thanks in part to still attractive Australian bond yields. The Aussie fell 0.6 percent to $0.7412 AUD=D4 , having been as high as $0.7545 in the previous session.
The Reserve Bank of Australia on Tuesday left interest rates unchanged as expected and again disappointed some doves by not providing a clear easing bias.