FOREX-Yen pulls away from lows as stocks fall

Mon Jan 6, 2014 4:10am EST

Related Topics

* Yen tends to move inversely to Nikkei

* Yen seen gaining vs euro, sterling

* Euro hits one-month low versus dollar then rises

By Laurence Fletcher

LONDON, Jan 6 (Reuters) - The yen rose on Monday, pulling away from recent five-year lows versus the dollar and the euro, as a fall in global stocks prompted traders to buy the safe-haven Japanese currency.

The dollar fell 0.3 percent to 104.55 yen while the euro was down 0.1 percent at 142.25 yen.

Asian shares led global stocks lower after growth in China's services sector slowed sharply last month.

The Nikkei and the yen - last year's weakest major currency - tend to move in opposite directions. A rally in the index is often a signal for speculators to sell the yen and buy higher-yielding currencies, while that trade may be unwound when risk appetite falls.

A weaker currency, on the other hand, boosts Japanese exports, which helps shares.

Traders and analysts said the Nikkei's 2 percent drop on Monday helped spur yen buying, including some short-covering.

"This is very much driven from Asia... The yen has been used as a funding currency and will gain support," said Ian Stannard, head of European currency strategy at Morgan Stanley.

He said euro/yen and sterling/yen could come under particular pressure.

"The euro and sterling have been very well supported into year-end, but now those year-end factors have started to slow down. This suggests they're vulnerable against a yen that is regaining strength."

The euro - whose second-half rally was driven by factors such as euro zone banks repatriating funds to shore up their capital bases and repaying cheap loans to the ECB - slipped to a one-month low of $1.35715 in Asian trading.

It was last up 0.1 percent at $1.3602, barely reacting to euro zone final December PMI data.

The dollar index edged higher to 80.872, near a one-month high of 80.895 set on Friday.

The first full trading week of 2014 could offer investors more clues to the dollar's direction in the months ahead.

The minutes of the U.S. Federal Reserve's December meeting are due on Wednesday. Policymakers decided at the meeting that they would begin to pare stimulus and cut asset purchases by $10 billion to $75 billion a month. The minutes could hint at the timing and pace of any further reductions in Fed stimulus.

Friday will bring the December U.S. payrolls report, which could suggest whether domestic job growth is strong enough for the Fed to continue tapering its asset buying.

Fed Chairman Ben Bernanke, who steps down at month's end, gave on Friday an upbeat assessment of the U.S. economy in coming quarters. But he tempered the good news in housing, finance and fiscal policies by repeating that the overall recovery "clearly remains incomplete" in the United States.

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