* Dollar/yen back near 107 after dropping below 106
* Recovery in stocks supports dollar/yen for now
* Aussie stretches previous day’s surge, reaches 9-day high
By Shinichi Saoshiro
TOKYO, April 5 (Reuters) - The dollar held steady against the yen on Thursday after recovering against the safe-haven Japanese currency as stocks bounced back from a sell-off triggered by an escalating U.S.-China trade spat.
The greenback was a shade higher at 106.845 yen, having pulled higher from a low of 105.990 set the previous day.
The yen, often sought in times of market turmoil and political tensions, had rallied as Wall Street shares initially tumbled on Wednesday after China’s swift move to impose retaliatory tariffs on U.S. goods
But a comeback by U.S. equities helped the dollar bounce, as trade war concerns calmed somewhat after President Donald Trump’s economic adviser Larry Kudlow said the administration was in “negotiation” with China, and not engaged in a trade war.
“It’s too early to say whether the markets have moved beyond trade conflict woes. The situation is still very fluid, and currencies, like dollar/yen, will remain hostage to each turn in equities,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
“Focus shifts to Friday’s U.S. jobs report for now, as steady economic fundamentals are about the only factor that can neutralise the negative effects stemming from political risks,” Ishikawa said.
Against the Swiss currency, another perceived safe haven along with the yen, the dollar was little changed at 0.9601 franc after rising 0.2 percent overnight.
The euro nudged up 0.05 percent to $1.2285, adding to the previous day’s modest gains.
The common currency still remained within reach of a two-week low of $1.2254 plumbed on Tuesday after a survey showed the euro zone’s manufacturing boom stumbled for a third month in March as optimism waned and demand ebbed.
The Australian dollar extended the previous day’s surge, when it was lifted by better-than-expected domestic retail sales data, to reach a nine-day high of $0.7726. (Reporting by Shinichi Saoshiro Editing by Shri Navaratnam)