Dollar up versus yen on risk demand

By Vivianne Rodrigues

NEW YORK (Reuters) - The dollar rose against the Japanese yen and Swiss franc on Monday as investors snapped up riskier assets such as stocks, encouraged by a dip in oil prices and unexpectedly strong earnings from HSBC.

The slight rise in investors' appetite for risk revived interest in carry trades, helping to lift the high-yielding euro, sterling and Australian and New Zealand dollars against the U.S. currency.

In carry trades, investors borrow against the yen or other low-yielding currency to buy assets offering higher returns. Some analysts now regard the dollar as a funding currency after the Federal Reserve slashed its key overnight lending rate by 3.25 percentage points to 2 percent since mid-September.

"With equities moving higher, we are having a little flow back into carry trades, which is helping euro/yen and propping the euro up against the dollar, in addition to sterling and the other high yielders," said Mark Meadows, senior currency strategist at Tempus Consulting in Washington.

By late afternoon, the dollar was trading at 103.90 yen, up 1 percent on the day. Against the Swiss franc, the dollar was up 0.4 percent at 1.0445 francs.

The euro vaulted 1.4 percent to an intraday peak of 161.42 yen, helping the euro zone currency to erase losses against the dollar. The euro last traded up 0.4 percent at $1.5534

There is a strong correlation between the euro/yen and stocks, and gains in the currency pair tend to feed through to euro/dollar.

Traders also attributed the euro's advance against the dollar to stop-losses above the $1.55 area amid thin liquidity, with most European markets closed.