Tuesday February 12, 2008 - 22:04:35 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen tumbles broadly on Buffett bond rescue plan
(Recasts, updates prices)
By Lucia Mutikani
NEW YORK, Feb 12 (Reuters) - The yen fell broadly on
Tuesday after billionaire Warren Buffett offered to assume
troubled bond insurers' liabilities, increasing investor
appetite for risky assets such as stocks and high-yielding
Buffett told CNBC television that the plan of his Berkshire
Hathaway company would cover $800 billion in municipal bonds, a
step that investors hope might ease recent credit market
The move reignited risk appetite, sparking a global stock
markets rally and sending the low-yielding yen tumbling across
the board. Investors often use the yen to fund acquisitions of
higher yielding assets and currencies.
"I would attribute a lot of what's going on in the currency
market to what's going on in the equities market. When
investors feel confident, equities rise and we see some of the
carry trades put back on," said Stephen Malyon, FX strategist
at Scotia Capital in Toronto.
The euro jumped to a session high of 157.05 yen, before
retracing slightly to trade at 156.46 yen <EURJPY=>, still 0.7
percent higher on the day. It firmed 0.4 percent to 1.6066
Swiss francs <EURCHF=>.
The dollar firmed 0.3 percent to 107.27 yen <JPY=>, but
fell against the euro, which raced to a session peak of $1.4614
<EUR=>, before easing to $1.4581 -- up about 0.4 percent from
A retreat by U.S. stocks' off earlier highs limited the
euro and the dollar's advance versus the yen.
UNDERLYING CREDIT PROBLEM REMAIN
Bond insurers guarantee more than $2.4 trillion of debt and
have been struggling to hold on to their top credit ratings
after suffering heavy losses from backing mortgage securities
that have plunged in value.
Markets worry that downgrades would rattle credit markets
further and set off more large write-downs on Wall Street.
Analysts said Buffett's offer to bond insurers did not
signal the end of market turmoil, and many said it did little
to address underlying credit problems.
"As details become clear, I think the market will start
reverting back to the recent pattern -- equity markets
remaining under pressure, the dollar gaining some traction and
the yen and Swiss gaining some traction as well," said Paresh
Upadhyaya, currency analyst at Putnam Investments in Boston.
Low yielding currencies such as the yen and Swiss franc
tend to attract flows during periods of uncertainty as their
low interest rates reflect the capital surplus of their
Sterling climbed 0.5 percent to $1.9612 <GBP=>, shaking off
earlier losses suffered after a tame British inflation report
boosted expectations of more Bank of England rate cuts ahead.
While a gauge of German business sentiment on Tuesday beat
expectations, the euro didn't get much traction until Buffett
revealed his bond insurer plan during early New York trade.
Analysts reckon this will not change expectations that the
European Central Bank will cut interest rates later this year
to counter slowing economic growth.
"The ECB really did subtly change its tone last week and
they are in the process of turning the ship, if you will," said
Sophia Drossos, senior FX strategist at Morgan Stanley in New
"It will take some time -- our sense is they won't be in a
position to cut until April at the earliest -- but there's no
more talk of their raising rates."
(Additional Reporting by Steven C Johnson; editing by Leslie
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