NEW YORK, March 26 (Reuters) - The U.S. dollar and euro rebounded against the yen on Thursday, as investors grew more comfortable buying risky assets such as stocks and commodities, dampening the Japanese currency's safe-haven appeal.
Sharp gains on Wall Street led by consumer shares along with the surge in oil, gold, and other base metals have offset persistent concerns about the viability of the U.S. banking system.
The increase in risk appetite also triggered gains in commodity currencies, such as the Australian and New Zealand dollars.
"There's a little bit of risk appetite in the market today because we have seen U.S. stocks gain and commodities rise. So that's why we're seeing gains in the dollar and euro versus the yen," said Adam Fazio, senior currency strategist, at CIBC World Markets in New York.
A further indication of risk appetite, he said, was the steep rise in Toronto's main stock index .GSPTSE, a resource-based market, which rose in line with firmer commodities on the view that demand may be starting to pick up.
In late afternoon trading, the dollar rose 1.2 percent against the yen to 98.71 yen <JPY=> while the euro rose 0.6 percent to 133.30 yen <EURJPY=>.
Along with the dollar, the yen has been a refuge for investors in times of financial distress, rising as traders unwind risky bets in stocks and oil financed in both currencies' low respective rates.
The euro <EUR=> slid 0.6 percent against the dollar to $1.3508, after going as low as $1.3502. The single euro zone currency has pulled back from highs on Wednesday that resulted from U.S. Treasury Secretary Timothy Geithner's comment about being open to expanding the use of the International Monetary Fund's Special Drawing Rights.
RISING COMMODITY CURRENCIES
Geithner testified on Thursday before the House Financial Services Committee on financial regulation reforms, but analysts said his remarks had little impact on the foreign exchange market. [ID:nN25438827]
Sterling <GBP=> fell 0.7 percent against the dollar to $1.4444, pressured by data showing UK retail sales were much weaker than expected.
The New Zealand dollar, meanwhile, surged to a 10-week peak against the dollar at US$0.5801 <NZD=> and touched its highest in more than four months against the yen at 57.09 yen <NZDJPY=R>, according to Reuters data.
The Kiwi dollar last traded at US$0.5744, up 1.5 percent.
New Zealand government debt yields surged in a sign investors were reining in expectations for lower rates. New Zealand's cash rate stands at 3 percent and the central bank has signaled it does not expect to reduce rates much further.
The Australian dollar also rose versus the greenback to US$0.7022 <AUD=>, up 0.7 percent on the day.
Analysts expect the rally in commodity-based currencies to continue. Some are anticipating a boom in this sector as investors hedge against long-term inflation risks with the onset of the Federal Reserve's quantitative easing or buying Treasury debt while massively expanding Uncle Sam's balance sheet.
"Commodities might soon become financialized again similar to 2007 and the first half of 2008 when commodities were not only rising due to strong industrial demand, but also (because) commodities were used as an independent asset class and hedging instrument against a weak dollar and rising inflation," BNP Paribas said in a research note.
Consequently, the bank recommended going long commodity currencies.
Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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