Friday September 19, 2008 - 09:49:59 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar surges vs yen on U.S. asset plan
* U.S. crisis plan boosts dollar, hits yen
* European stocks rally as risk aversion eases
* High-yielders also benefit
* Dollar up 1.8 percent against yen at 107.42 <JPY=>
(Updates prices, adds comment, byline)
By Jessica Mortimer
LONDON, Sept 19 (Reuters) - The dollar rose nearly two
percent against the yen on Friday, boosted by news that the U.S.
government was considering a comprehensive plan to deal with the
toxic bank assets at the heart of the financial market turmoil.
The yen tumbled to its weakest level in a week against the
U.S. currency, while higher-yielding currencies such as the
Australian dollar rose as investors regained some confidence.
Shares in financial stocks soared, helping the U.S. stock
market post its biggest percentage gain in six years overnight,
while European stocks rallied more than five percent in
"The dynamic has been a clear revival in risk appetite ...
Risk averse currencies such as the yen and the Swiss franc have
come under a lot of pressure," Standard Chartered currency
strategist Robert Minikin said.
At 0814 GMT, the dollar had gained 1.8 percent against the
yen <JPY=> to 107.42 yen, while the euro rose 1.3 percent to
152.60 yen <EURJPY=>.
The dollar index .DXY which tracks the U.S. currency's
performance against six major currencies, was up 1.1 percent at
The euro <EUR=> slipped 0.8 percent against the dollar on
the day to $1.4205, well off Thursday's 2-week high of $1.4543.
The high-yielding Australian dollar gained about 1 percent
against the U.S. dollar <AUD=> to $0.8117.
U.S. Treasury Secretary Henry Paulson and Federal Reserve
Chairman Ben Bernanke plan to work through the weekend on a plan
to deal with the illiquid assets that have choked the financial
system. See [ID:nLJ263541].
These assets have shattered bank balance sheets, leading to
the collapse of Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) and the U.S. government
bailout of U.S. insurer AIG (AIG.N: Quote, Profile, Research, Stock Buzz).
On Thursday, major central banks acted to inject liquidity
to relieve jammed-up money markets, and the UK's Financial
Services Authority implemented a temporary ban on short selling
in a further boost to risk appetite.
While the news gave a major boost to risk appetite, stock
prices and carry trades -- where market players use the
low-yielding yen to fund purchases of assets offering higher
returns elsewhere -- investors will be keeping a keen eye on the
details of the deal and markets are likely to remain volatile.
"The market is still very volatile. It is not clear whether
this is a dollar positive or a dollar negative," a trader said.
Concerns about the bad debt the U.S. government will be
taking on and the implications for the already hefty U.S.
deficit mean the deal may not be positive for the dollar in the
"These steps will stabilise the financial system ... but the
problems of very bad assets hasn't gone away, it has merely
shifted from the banks to the government and this could be a
dollar negative further out," Standard Chartered's Minikin said.
(Reporting by Jessica Mortimer)
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