Wednesday December 10, 2008 - 12:38:46 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen falls, US auto bailout hopes lift sentiment
* Yen slides, dlr dips vs euro on US auto bailout hopes
* US could vote on rescue plan as early as Wednesday
* BoJ's Shirakawa comments on FX mkt weigh on yen
* Yen losses seen limited, risk aversion stays high
(Changes byline, adds quotes, updates prices)
By Jessica Mortimer
LONDON, Dec 10 (Reuters) - The yen fell broadly, while the
dollar dipped to a two-week low against the euro on Wednesday as
a tentative agreement by U.S. lawmakers to rescue stricken
automakers helped cool extreme risk aversion.
The White House and congressional Democrats reached a deal
in principle on a $15 billion plan to bail out and restructure
auto firms, with officials saying the House of Representatives
could vote on it as early as Wednesday [ID:nN09294627].
The news bolstered global shares by 0.78 percent
.MIWD00000PUS and weighed on the low-yielding yen.
"The market is focusing very much on the bailout deal for
automakers," IDEAglobal senior strategist Maurice Pomery said.
"We're seeing a bit of a short squeeze that is pushing the
yen lower," he added.
A tentative improvement in sentiment cooled a rush to unwind
carry trades, which use the yen -- whose interest rate is near
zero -- to fund purchases of higher-yielding assets.
Analysts noted that fears of Bank of Japan intervention to
prevent too much yen strength also weighed on the currency after
BoJ Governor Masaaki Shirakawa said on Wednesday he was watching
forex moves carefully [ID:nTKF003197].
"There is a fear that the BoJ may intervene if dollar/yen
falls below 90 yen," ING head of forex strategy Chris Turner
At 1200 GMT, the dollar rose 0.7 percent to 92.73 yen
<JPY=>, while the euro <EURJPY=R> gained 0.9 percent to 120.01
Cooler risk aversion also weighed on the dollar, with the
euro <EUR=> edging up 0.2 percent to $1.2940, having earlier hit
a two-week high of $1.3004, according to Reuters data.
IDEAglobal's Pomery noted, however, that liquidity is
extremely weak in the run-up to Christmas, with most market
players only trading if they have to.
"This means that what is no more than benign interest is
producing swings that are bigger than normal," he said.
US BAILOUT IN FOCUS
Analysts believe the falls in the yen are likely to be
short-lived as global recession fears keep risk aversion high.
The prospect of interest rates in other developed countries
falling towards the low rates in Japan will also keep the
Japanese currency supported, they said.
Traders waited to see whether the House of Representatives
would approve the automaker bailout, which includes conditions
to provide low-interest loans to avert a threatened industry
collapse if one of the big three car firms were to fail.
Some market participants are sceptical on whether such a
plan, if passed, would actually save the struggling auto sector,
while others argue that it would ultimately do little to cure
the global recession.
"The market may yet reach a stage where interest in risk
assets cannot be justified by the underlying conditions in the
global economy," analysts at UBS said in a research note.
(Reporting by Jessica Mortimer; editing by Stephen Nisbet)
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