GLOBAL MARKETS-Yen steady, euro rises after G7 fires currency warning

Tue Feb 12, 2013 8:17am EST

* G7 says committed to market determined FX, euro rises 0.3
pct
    * Yen steady near May 2010 low vs dollar
    * Commodity markets shrug off North Korea nuclear test

    By Marc Jones
    LONDON, Feb 12 (Reuters) - The yen hovered near three-year
lows against the dollar and the euro rose on Tuesday after the
Group of Seven industrialised nations urged countries to refrain
from competitive devaluations.
    The G7 statement said it remained committed to
"market-determined" exchange rates, reacting to weeks of concern
that the new government of Japan's monetary easing policy, which
has also weakened its currency, could trigger far-reaching
currency wars.
    "We reaffirm that our fiscal and monetary policies have been
and will remain oriented towards meeting our respective domestic
objectives using domestic instruments, and that we will not
target exchange rates," the group said.
    The message offered little to suggest that Tokyo is going to
come under serious pressure when G20 finance ministers and
central bankers meet in Moscow at the end of the week, not least
because the United States is employing similar policies.
    Japanese Finance Minister Taro Aso welcomed the statement,
saying it recognised Tokyo's policy steps were not "aimed at
influencing currency markets".
    The dollar edged up to 94.21 yen, from around 94.16
yen before the statement was issued and just short of Monday's
94.465 yen, which was the highest since May 2010. 
    U.S. Treasury official Lael Brainard also said on Monday
that while competitive devaluations should be avoided,
Washington supported Tokyo's efforts to reinvigorate growth and
end deflation. 
 

    EURO REBOUND
    The euro, the main riser among major currencies over the
last few months as confidence in the euro zone has rebounded,
fell after the G7 statement but was quickly on the rise again
after Switzerland's central bank said it was ready take further
steps if needed to keep a lid on the franc. 
    As afternoon trading gathered pace, the euro was up 0.3
percent at $1.3430, its highest for three days.
    There had been a brief rise earlier after ECB Vice President
Vitor Constancio said the bank's employment growth and inflation
forecasts next month were likely to be close to the December
figures. 
    The comments doused rate cut hopes, re-kindled last week
when the head of the bank, Mario Draghi, said it was looking to
see whether the euro's recent rise risked pushing inflation
below its comfort zone.
    France has called for a "medium-term" target to prevent the
euro becoming too strong, but the country's Finance Minister
Pierre Moscovici made little headway with the idea at a meeting
of euro zone finance ministers on Monday. 
    "There had been some growing suspicions that maybe, just
maybe, the euro zone could potentially attempt to weaken the
euro ... so this (G7 statement) helped counteract that," said
Jane Foley, a senior currency strategist at Rabobank.
    
    STATE OF THE UNION
    Having started the day down 0.2 percent, European shares
were up 0.1 percent by 1245 GMT after London's FTSE 100 
and Paris's CAC-40 and Frankfurt's DAX had all
recovered.
    In European bond markets, Spanish and Italian bonds inched
up as domestic buyers took advantage of a recent sell-off, but
the recovery looked fragile, given political uncertainty in both
countries.
    Spain sold 5.6 billion euros of 6- and 12-month debt,
beating the top end of the target amount, but paid a higher
yield on the longer-term paper as a political corruption scandal
weighed on shaky confidence. Italy also saw costs rise as it
sold 8.5 billion euros of one-year paper. 
    The ECB's Draghi is due to address Spanish lawmakers later
on Tuesday to explain and defend the ECB's current monetary
policy strategy against a backdrop of heightened concerns about
the strong euro.
    He is also expected to meet Prime Minister Mariano Rajoy,
but the market does not expect them to discuss whether Madrid
might need financial aid, which would trigger the ECB's bond
purchase scheme.    
    U.S. stock index futures pointed to a broadly flat
open on Wall Street, while Nasdaq 100 futures signalled a
weaker start for technology stocks. MSCI's global share index
 was up 0.1 percent.
    With little in terms of significant data, U.S. markets were
focused on the evening's State of the Union address by President
Barack Obama for any signs of a deal to avert automatic spending
cuts due to take effect on March 1.
    Financial markets showed a muted reaction, meanwhile, to the
news that North Korea has conducted a nuclear test and said it
would never bow to U.N. resolutions. 
    A nuclear test monitoring agency in Vienna said the blast
was double the size of North Korea's last test in 2009. NATO
condemned the move, calling it an "irresponsible act" that posed
a grave threat to world peace.    
    Brent oil rose towards $119 a barrel, copper edged
up, while spot gold stayed near a one-month low.
  
    "The test was not something that makes your heart pound as
much as a pressing situation between Iran and Israel," said
Kaname Gokon, research manager at brokerage Okato Shoji,
referring to the threat of possible military action to prevent
Iran from developing nuclear weapons.