* Euro turns negative as French bank stocks fall
* Yen near record high vs dollar, shakes off earlier selling
* Record high yuan fix boosts yen, Australian dollar
By Nia Williams
LONDON, Aug 11 The euro gave up early gains
against the dollar on Thursday as European banking stocks fell
sharply, stoking concerns the region's sovereign debt crisis is
spreading to its financial sector.
The yen hovered near an all-time high against the dollar,
recovering from a brief, sharp fall as investors continued to
buy the safe-haven currency even as speculation grows that
Japanese authorities may step at any time to stem its strength.
Traders also attributed the yen's latest rise to a record
high yuan fix which strengthened other Asian currencies used as
a proxy for the Chinese currency.
A steady retreat in European shares from early
gains prompted investors to dump risky currencies, including the
euro, while system-related selling accelerated the single
currency's losses, pushing it near the day's low.
"The risk is clearly still that we could see this crisis
continue to destabilise the euro," said Lee Hardman, currency
strategist at BTM UFJ.
"We think there's an increasing risk of recession not just
in the periphery but spreading through to the core."
The euro was flat on the day at $1.4180, pulling back
from a session high of $1.4275 according to electronic trading
platform EBS. A break of $1.4230 triggered selling by
system-related funds which accelerated its move, taking it near
the day's trough of $1.4122.
The dollar last traded down 0.4 percent on the day at
76.60 yen. In earlier trade, the dollar jumped to above 77 yen
from 76.30 yen , prompting speculation that Tokyo was
selling yen to try to weaken the currency.
It hovered near its all-time low of 76.25. Analysts said the
current uncertainty in global financial markets meant the yen
would continue to be well bid.
"We got almost to the previous (dollar) low and the market
is much more jumpy at these extreme levels," said Kit Juckes,
currency strategist at Societe Generale.
"Without intervention the yen will appreciate further.
Gravity will pull dollar/yen down as long as U.S. Treasury
yields are so low, and China is a huge trading partner of Japan
so yuan strength helps the Japanese currency."
The Japanese currency has also been boosted in recent weeks
as investors seek shelter from the euro zone debt crisis and
concerns about the U.S. economy.
A Ministry of Finance official declined to comment whether
Japanese authorities intervened, while Japanese Prime Minister
Naoto Kan said moves in the foreign exchange market were
one-sided and the government would continue to monitor moves and
Traders cited option barriers around 76.25 yen, with large
option expiries at 76.00 yen later on Thursday.
Front-dated dollar/yen implied vols also rose on Thursday as
market players became more nervous about the prospect of
intervention, with one-week vols rising to around
18.25 percent from 16.80 on Wednesday.
Commodity currencies such as the Australian and New Zealand
dollars benefited from speculation China may widen the band
within which the yuan can trade against the U.S. dollar. The
Aussie climbed to US$1.0217 , up 0.3 percent on the day.
The kiwi rose 0.6 percent to US$0.8168.
Safe haven currency the Swiss franc weakened on market
chatter that Swiss National Bank could be considering imposing
negative interest rates.
The euro rose 1.8 percent to 1.0485 francs , off a
record low of 1.0075 hit on Tuesday. Selling versus the dollar
pulled the euro away from a session high of 1.0553 francs.
The dollar climbed 1.5 percent to 0.7375 francs but
analysts said moves would be difficult to sustain.
"Comments from the SNB suggests they are at a point where
they are considering more unconventional and aggressive measures
to dampen the Swiss franc which has reached extreme levels of
over-valuation and is a threat to the Swiss economy," BTM's
(Editing by Toby Chopra)