Tuesday November 25, 2008 - 12:48:20 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen climbs, volatile shares keep risk aversion high
* Yen gains vs euro, dlr, pound slides
* Risk aversion high; shares recoup loss in choppy trade
* High-yielding Australian and New Zealand dollars tumble
(Changes dateline, byline, adds quotes, updates prices)
By Naomi Tajitsu
LONDON, Nov 25 (Reuters) - The yen gained broadly on
Tuesday, while currencies with high yields fell as global
recession fears returned to haunt financial markets, keeping
stock markets volatile and risk demand low.
Boosting the low-yielding yen was an early slide in European
shares after optimism about news on Monday that the U.S.
government would rescue Citigroup (C.N: Quote, Profile, Research, Stock Buzz) quickly dissipated.
Analysts said the market remained jittery about ongoing
problems in the banking sector, which kept demand high to unwind
carry trades which use the yen to buy assets in higher-yielding
currencies like the Australian and New Zealand dollars.
"The market is still braced for more news on bank rescues,
which could potentially be positive," said Michael Hart,
currency strategist at Citigroup in London.
"But the fact that we're still looking for new policy
measures after all that has been done is a negative sign," he
Ongoing signs of deep economic weakness also kept risk
demand low, while comments from Bank of England Governor Mervyn
King that he may need to cut UK interest rates more than
expected reminded investors that more big rate cuts were in the
Meanwhile, media reports quoted European Central Bank
Governing Council member Ewald Nowotny as saying that the
central bank wants to keep some rate ammunition in reserve,
bolstering the view that the ECB would refrain from aggressive
cuts seen by the BoE [nWEA6601]
The dollar <JPY=> fell 0.8 percent to 96.23 yen, while the
euro dropped 1.17 percent to 123.15 yen <EURJPY=R>.
Putting selling pressure on the single European currency was
a 1 percent fall in European shares .FTEU3 in early trade,
reversing a near 9 percent rally on Monday.
Stocks recovered to edge up 0.7 percent by 1138 GMT, with
analysts citing month-end demand for stocks to rebalance
investment portfolios, but gains were limited as few traders
were interested in taking on significant risk.
MORE EVIDENCE OF RECESSION
The euro fell 0.3 percent to $1.2868 <EUR=>, extending
losses after data released early in the European session
confirmed that the German economy contracted by 0.5 percent in
the third quarter [ID:nLP2773].
"The two former mainstays of the German upswing, investment
in machinery and equipment and exports, have ... developed into
handicaps -- hardly an encouraging omen for 2009," Commerzbank
economist Christoph Weil said in a note to clients.
Other surveys showed falls in confidence among French
businesses and Italian consumers.
The high-yielding Australian <AUD=> and New Zealand dollars
<NZD=> lost more than 2 percent against the U.S. currency, while
dropping more than 3 percent against the yen <AUDJPY=R>
<NZDJPY=R> as investors continued to unwind carry trades.
The dollar has also benefited from a sharp drop in risk
appetite as positions in risky investments are closed out and
their proceeds are converted back to the U.S. currency.
The pound <GBP=> fell 0.6 percent to a session low of
$1.5057, stung after the BoE's King said he may need to cut
rates more than the central bank would otherwise as banks have
been slow to pass on the effects of lower rates to customers.
Traders also shed sterling positions after Monday's optimism
about stimulatory measures announced in the UK government's
Pre-Budget report gave way to renewed fears about the weak
economic outlook and rising levels of debt.
Investors awaited preliminary data on U.S. economic growth
in the third quarter at 1330 GMT as evidence mounts that the
U.S. economy is in a recession as the credit crisis continues to
batter the financial and auto industries.
U.S. consumer confidence numbers for November and the
Richmond Fed index at 1500 GMT will also be closely eyed to
better gauge the health of the U.S. economy.
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