Monday February 25, 2008 - 13:04:58 GMT
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Reuters - www.reuters.com
FOREX NEWS - Yen sags as risk appetite improves
LONDON, Feb 25 (Reuters) - The yen weakened broadly on Monday as positive news about the U.S. financial sector boosted appetite for riskier trades, helping underpin high-yielding currencies like the New Zealand dollar.
Hopes that a possible rescue plan for troubled Ambac Financial Group (ABK.N: Quote, Profile, Research), the second largest U.S. bond insurer, would help limit the damage from a credit crisis had bolstered investor confidence.
"Equity markets are up strongly on the back of that, and that's underpinning a couple of risky assets," said Paul Robson, currency strategist at RBS Global Banking.
"Over the short-term the focus is very much on recovering equity markets and some movement forward on the reassurance of the bond insurers."
A rescue plan for Ambac, which is facing billions of dollars of expected losses from guaranteeing repackaged subprime mortgages, may be announced on Monday or Tuesday, a person familiar with the matter told Reuters. [ID:nN22619851].
The worry is that a ratings downgrade for Ambac would force investors to sell billions of dollars of securities and lift borrowing costs for consumers and U.S. city governments, adding further strain to an already slowing U.S. economy.
By 1135 GMT, the dollar was up 0.6 percent against the Japanese currency at 107.88 yen <JPY=>, while the euro rose to a six-week high of 159.92 yen before trimming gains <EURJPY=>.
The euro eased 0.2 percent to $1.4799 <EUR=>, taking a breather after hitting a three-week peak of about $1.4862 on Friday.
HIGH YIELDERS BUOYED
European stocks climbed 1.5 percent , following gains in Asian and U.S. markets. Earlier, Japan's Nikkei .N225 rallied 3.1 percent to a six-week closing high.
High-yielding currencies tend to benefit in such an environment as investors favour riskier carry trades, where low-yielding units like the yen are sold to fund purchases of higher-yielding and riskier assets.
The New Zealand dollar <NZD=>, which has the highest interest rates among industrialised countries at 8.25 percent, approached levels not seen since it was floated 23 years ago.
The Kiwi dollar hit a high near $0.81 before slipping to be little changed at $0.8083. It advanced 0.6 percent against the yen to 87.19 yen <NZDJPY=R>.
Sterling climbed 0.3 percent to 211.93 yen <GBPJPY=R> but eased 0.2 percent against the dollar to $1.9639, hampered by a fall in British annual house price inflation to a 22-month low, which backed the case for more growth-boosting interest rate cuts <GBP=>.
With relatively little on the European data front, investors will look to comments from European Central Bank President Jean-Claude Trichet who is speaking at 1900 GMT.
"Given the sensitivity of the ECB to inflation, expect hawkish rhetoric that would undermine hopes of an early ECB rate cut and thereby provide short-term support for the EUR," said analysts at BNP Paribas Corporate and Investment Banking in a report.
In the United States, the focus will be on January existing home sales data due at 1500 GMT, where a weaker-than-expected outcome could pressure to the dollar. Economists surveyed by Reuters expect sales to have declined to a 4.8 million annualised rate, down from 4.89 million units in December.
Â© Reuters 2008 All rights reserved
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