CORRECTED-FOREX-Yen hits 7-month low, euro helped by Greece hopes

Tue Nov 20, 2012 7:53pm EST

(Corrects second paragraph to say euro near two-week highs vs dollar, not low)

* Yen under pressure on speculation of BOJ easing

* RSI puts dollar/yen in overbought territory

* Abe "magic" may run out by U.S. Thanksgiving - analyst

* Euro supported by cautious optimism on Greece

By Hideyuki Sano

TOKYO, Nov 21 (Reuters) - The yen slumped to seven-month lows against the dollar On Wednesday and fell nearly as far against the euro on views Japan's central bank will be pushed into implementing more radical monetary expansion policies.

The euro held near two-week highs against the dollar, helped by hopes that euro zone finance ministers will agree to unblock aid to Greece in their ongoing discussions on ways to reduce the country's debt to sustainable levels.

The dollar traded at 81.75 yen, flat from late U.S. levels after having risen as high as 81.80 yen in early Asian trade, a level not seen since early April.

There is market talk of an option barrier at 82 yen, and a rise above that level can trigger more short-covering in the dollar, though oscillators such as the relative strength index are showing signs the dollar may be overbought territory in the short-term.

The euro also hit a six-month high of 104.76 yen in early Wednesday trade and last stood at 104.65 yen, flat from late U.S. trade.

The yen has been falling sharply after Prime Minister Yoshihko Noda called an election on Dec. 16 and the main opposition leader, a front-runner to become the next premier, is pushing the Bank of Japan for more aggressive monetary stimulus.

Shinzo Abe, the leader of the Liberal Democratic Party, has put monetary policy at the centre of debate ahead of the election, calling for "unlimited easing", pushing rates below zero, directly underwriting bonds issued to fund public works, and setting an inflation target as high as 3 percent.

But some analysts say the latest bout of yen weakness may be coming to an end soon.

"Abe now has few other things left to say about monetary policy. It's about the time the power of his magic to run out," said Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp, adding that the yen's slide will likely have run its course by the U.S. Thanksgiving on Thursday.

The euro stood at $1.2814, near a two-week high of $1.28295 set on Tuesday as the market looked to the ongoing meeting of euro zone finance ministers with hope of progress on a deal to support Greece.

As the euro recovers, the dollar's index against a basket of six major currencies slipped from Monday's 2 1/2-month peak of 81.455 and last stood at 80.895.

Concerns that the U.S. economy faces a risk of recession if lawmakers fail to agree on measures to defer a fiscal crunch due to kick in early next year have supported the dollar, the vast liquidity of which makes it an investors' safe haven at times of crisis.

U.S. Federal Reserve Chairman Ben Bernanke said on Tuesday the Fed does not have the tools to offset the impact of a worst case "fiscal cliff" scenario.

He maintained his guidance that U.S. monetary policy would stay loose with interest rates near zero until at least mid-2015.

But he offered few clues, however, on how the Fed might tweak its bond-purchase program at the start of next year in its effort to spur more borrowing at low interest rates. (Reporting by Hideyuki Sano; Editing by Eric Meijer and Paul Tait)

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