Wednesday December 3, 2008 - 13:29:18 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen gains, risk aversion hits global equities
* Yen rises, global shares slide on risk aversion
* Stg falls to lowest-level since 1996 on weak services PMI
* Market awaits rate decisions from ECB, BoE
(Adds quotes, updates prices)
By Harpreet Bhal
LONDON, Dec 3 (Reuters) - The yen extended broad gains on
Wednesday, reflecting heightened risk aversion as investors cut
back on investments in higher-yielding assets while global
Currency moves were subdued ahead of interest rate decisions
by central banks in the euro zone, Britain, New Zealand and
Sweden on Thursday, with expectations high of aggressive
monetary policy easing to counter the threat of deflation.
The low-yielding Japanese currency, which hovered near a
five-week high against the dollar, drew strength from tumbling
share prices as European equities fell 1.1 percent ,
while U.S stock futures .DJc1 were slated to open lower.
Investors have flocked to the dollar and the yen on the view
that the ECB, BoE and other central banks have more scope to cut
rates than the Bank of Japan and the Federal Reserve, whose
rates are already low.
Investors continued to unwind carry trades, where the yen
was used to fund purchases of higher-yielding assets. Analysts
said the yen would take strength from share prices -- often seen
as a barometer of investors' risk appetite -- which suggest that
risk aversion remains high.
"There is nothing to suggest last week's rally in stocks can
be sustained," said Geoffrey Yu, currency strategist at UBS in
"Very few people want to take on fresh risks and that is not
going to help any currency to move strongly against the yen."
By 1214 GMT, the dollar slid 0.2 percent to 93.18 yen
<JPY=>, while the euro fell 0.7 percent to 117.81 yen <EURJPY=>.
The euro <EUR=> fell half a percent to $1.2648, struggling
after data showed further deterioration in the euro zone
China's central bank entered the domestic foreign exchange
market on Wednesday to offer dollar liquidity, which pulled the
yuan off the bottom of its daily trading band versus the U.S.
However, many in the market believe China is adjusting its
currency policy towards moderate yuan depreciation to stimulate
WEAK SERVICES PMI
Sterling fell broadly, pushing its level against a basket of
currencies <=GBP> to its lowest level since January 1996, after
data showed that the UK services sector shrank faster than
expected in November [ID:nL2553471]
The purchasing managers' index (PMI) for the services sector
fell to a series low of 40.1, boosting expectations that the
Bank of England may slash rates by a full percentage point from
3.0 percent on Thursday to shore up the domestic economy.
Earlier in the day, bleak PMI services data for the euro
zone pushed the euro to a session low against the dollar and the
yen, as the figure provided further evidence that the single
currency region is grappling with a recession.
Ongoing signs of economic weakness are seen prompting the
European Central Bank to cut interest rates by 50 basis points
or even more on Thursday from 3.25 percent at the moment.
The market's focus will be centered on how aggressively the
ECB and the BoE cut interest rates, as big rate cuts would
diminish the yield advantage of their currencies over the
(Reporting by Harpreet Bhal; Editing by Patrick Graham)
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