Yen approaches record high vs dollar; Nikkei eyed

Arrangement of various world currencies including Chinese Yuan, Japanese Yen, US Dollar, Euro, British Pound, Swiss Franc are pictured in Warsaw January 26, 2011.

SYDNEY (Reuters) - The yen stood within a whisker of a record high against the dollar early in Asia on Wednesday, while the Swiss franc held at all-time highs as jitters about Japan's nuclear crisis kept investors on edge.

Global equity markets sold off on Tuesday led by an eye-watering 10.6 percent plunge in the Nikkei .N225 as investors bailed out after reports a quake-crippled nuclear power plant had sent radiation wafting into Tokyo, prompting some people to flee the capital.

There is, however, a chance that markets consolidate following such a dramatic move, especially after U.S. stocks .SPX halved losses to end 1.0 percent lower.

"We've got to see how the Japanese equity market holds in. That's going to be key for our market today. It's going to be headline driven as it was yesterday, but hopefully, we'll get a bit of calm back in the market today," a trader at a U.S. investment bank said.

"Everyone will be fairly nimble and humble today. It's going to be very thin, illiquid and precarious."

The dollar last traded at 80.72 yen, having fallen as low as 80.60 overnight, less than a yen away from the 1995 record low of 79.75. The euro briefly fell below 112 yen for the first time in two weeks, before edging back to 113.02.

David Rodriguez, strategist at DailyFX, said the resurgent yen would have risen even higher if not for rumors of Bank of Japan currency intervention that kept dollar/yen from a larger breakdown.

Since a massive earthquake and tsunami hit Japan on Friday, the yen has risen partly on expectations Japanese insurers and companies will repatriate funds to help pay claims and reconstruction costs.

But fears of intervention by Japanese authorities to weaken the yen has limited its upside so far.

The yen rallied particularly strongly against higher-yielding currencies such as the Australian dollar, which are normally seen as proxies for global growth and sold in times of stress.

The Australian dollar slid to a 4- month low around 79.23 yen and hit a nine-week low of $0.9815. It last stood at 79.93 yen and $0.9901.

Investors also sought safety in the Swiss franc, which usually benefits in times of market turmoil, driving the currency to an all-time high against the greenback.

The dollar last traded at 0.9159 Swiss francs, having plumbed a trough around 0.9137.

All these developments left euro/dollar pretty much sidelined. The common currency softened to $1.3981, from $1.3999 late in New York, after Moody's cut the sovereign rating of Portugal by two notches and kept a negative outlook.

But it had strengthened recently on hawkish comments from a European Central Bank official and after euro zone leaders agreed to measures aimed at tackling the region's sovereign debt problems.

The outcome of the Federal Reserve policy meeting was also overshadowed by Japan. Fed policymakers reiterated a pledge to keep interest rates, currently near zero, at very low levels for an extended period.

The Fed said while the U.S. recovery is gaining traction, inflation pressure from soaring energy costs should be short-lived, allowing it to maintain its heavy support for the economy.

(Editing by Wayne Cole)