* Yen gains on profit-taking after euro, dollar rallies
* Dollar reverses early losses to rise vs euro
* Euro supported by higher money market rates
By Laurence Fletcher
LONDON, Dec 11 The yen rose for a second day on
Wednesday as global stock markets fell and as investors locked
in profits from the dollar and euro's strong rallies this year
against the Japanese currency.
The euro fell marginally against the dollar, after
its recent gains driven by tighter liquidity conditions and
banks' moves to shore up their capital positions.
The dollar was 0.3 percent lower against the yen at
102.54 yen, while the euro was 0.4 percent down at 140.98 yen
Asian stock markets led global shares lower on Wednesday, as
investors booked profits on a range of once-crowded positions.
The Nikkei and the yen tend to move in opposite
directions, with a rally in the share index a signal for
speculators to sell the yen. A lower currency then promises to
boost Japanese exports, which helps shares.
Both the euro and the dollar have rallied strongly against
the yen this year thanks to the Bank of Japan's ultra-loose
monetary policy and expectations that it will provide even more
stimulus next year.
"It's a bit of profit-taking from high levels," said Peter
Kinsella, currency strategist at Commerzbank.
Analysts at Morgan Stanley said they remain bullish on
dollar/yen over the longer-term but added: "We ... note that the
current uptrend is showing some signs of exhaustion, suggesting
that it would not take too big a shock to trigger a correction
of the strong gains seen over the past year."
The euro was 0.1 percent down against the dollar at
$1.3747, not far from the six-week high of $1.3795 it hit on
It failed to take heart from news that euro zone countries
were edging towards a deal on how to handle ailing banks.
Divisions remain over key parts of the reform, which is needed
to underpin confidence in the bloc's lenders.
The euro has gained recently thanks to tighter money market
conditions in the euro zone. The rise of two-year swap rates
partly due to year-end factors and the ECB's
unwillingness to ease monetary policy soon to fight disinflation
have seen rate differentials more in favour of the euro.
And liquidity conditions in the euro zone money market
usually tighten towards the end of the year as banks refrain
from lending to each other. This year another factor driving
euro strength is European banks repatriating funds to shore up
their capital bases ahead of an ECB asset quality review.
The dollar index, which measures its value against a basket
of six major currencies, was up 0.1 percent at 80.006,
just off its six-week low of 79.843 hit on Tuesday.
It showed little reaction to news that budget negotiators in
the U.S. Congress have reached a two-year agreement aimed at
avoiding a government shutdown on Jan. 15.
Trading volumes of most currency pairs were well below the
average over the past month, according to data from the Reuters
Commerzbank's Kinsella added: "There are very, very low
levels going into year-end, which may be exaggerating moves