Tuesday October 28, 2008 - 10:31:16 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen retreats broadly, risk aversion abates
* Yen slides as share price rebound spurs short-covering
* Nikkei jumps 6.4 pct from 26-yr low, European stocks rise
* Investors still nervous, further yen gains eyed
* RBA intervenes to prop up Aussie for third day
(Changes dateline, byline, adds quotes, update prices)
By Veronica Brown
LONDON, Oct 28 (Reuters) - The yen backed away from recent
13-year highs against the dollar on Tuesday as rebounding stock
markets and the threat of official intervention halted the
Japanese currency's broad surge.
Japan's Nikkei share average .N225 jumped 6.4 percent from
a 26-year low as investor bets on falling share prices were
restricted, lighting a fire under the euro and Australian
dollar, two of the currencies most battered against the yen.
World stock markets as measured by MSCI's all-country index
.MIWD00000PUS rose 1.5 percent, helping to take some out of
extreme risk aversion.
But the respite for stock markets and the yen's fall were
seen as a temporary pause from recent price action as the
spectre of a prolonged global recession was expected to keep
investors in risk averse mode.
"I think what we've seen this morning will be rather
fleeting in terms of its impact. There's no sense that the
underlying trend of dollar strength and yen strength is set to
change," said Daragh Maher, deputy head of Calyon global foreign
exchange research in London.
The Nikkei's plunge and yen's big gains this month have
reinforced each other, with falling share prices prompting a
stampede towards the Japanese currency.
Distressed stock market prices and the yen's rise succeeded
in getting Group of Seven economic powers to warn against
excessive yen volatility on Monday, a move seen as opening the
way for Japanese officials to intervene if necessary.
By 1006 GMT, the dollar had jumped 2 percent from late U.S.
trade to 94.69 yen <JPY=>, moving away from a 13-year low of
90.90 yen struck on Friday, according to Reuters data.
The euro was up 2.2 percent at 118.30 yen <EURJPY=R>, having
earlier topped 120 yen. The euro struck a 6-1/2 year low of
113.61 yen on Monday.
The euro rose 0.2 percent on the day to $1.2485 <EUR=>,
after earlier hitting a 2-1/2-year low. European Central Bank
President Jean-Claude Trichet on Monday said the bank could cut
rates at its policy meeting next week. [ID:nLR566958]
MORE JITTERS, YEN GAINS ON THE CARDS
While the prospect of intervention remained as a real
threat, many in the market were doubtful that intervention would
be effective enough to change the current trend for yen buying
unless it was internationally coordinated.
French Economy Minister Christine Lagarde said on Monday any
intervention on the yen would be a purely Bank of Japan
Traders said the yen is likely to test a 13-year peak
against the dollar sooner or later if Japanese investors, who
still have lots of overseas assets, decide to dump them and
repatriate their proceeds.
"Market participants, including players of yen carry trades,
hedge funds and Japanese individual investors, continue to trim
their assets as Japanese stocks have fallen so much," said
Hideki Hayashi, chief economist at Shinko Securities.
And despite Tuesday's gains, the Nikkei has lost more than
half its value this year.
Trichet's comments about a possible rate cut next week
surprised the market and investors are now speculating about the
the size of a move. Earlier this month, the ECB cut rates by 50
basis points together with other central banks including the
The Fed is also seen cutting rates at its two-day meeting
starting on Tuesday. Many in the market expect the Fed to slash
the fed funds rate -- currently at 1.50 percent -- by at least
50 basis points. FEDWATCH
The Australian dollar climbed 3 percent against the U.S.
dollar to $0.6230 in Asian trade after the Reserve Bank of
Australia intervened to prop up the Australian currency.
It was the third straight day that the central bank entered
the market to help the Australian dollar, which has lost more
than 35 percent against the U.S. dollar since peaking in July.
(Reporting by Veronica Brown; Editing by Andy Bruce)
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