March 4, 2014 / 10:56 PM / 4 years ago

FOREX-Yen suffers reversal as Ukraine jitters ease; China targets eyed

* Yen falls across the board as risk appetite improves

* Putin says he would use force in Ukraine only as a last resort

* China annual parliament meeting in focus, 2014 growth target eyed

By Ian Chua

SYDNEY, March 5 (Reuters) - The yen nursed heavy losses early on Wednesday, having suffered a vicious turnaround as safety demand faded after Russian President Vladimir Putin played down the prospect of a war in Ukraine.

The dollar jumped to 102.26 yen from Tuesday’s low of 101.40, while the euro climbed to 140.49 yen from 139.28. The move nearly reversed all the yen’s gains made over the previous two sessions.

The Australian dollar rallied nearly 1 percent to 91.52 yen , putting a one-month trough of 90.01 plumbed on Monday firmly in the rear-view mirror.

At his first news conference since the crisis began, Putin said Russia reserved the right to use all options to protect compatriots who were living in “terror” in Ukraine, but that force was not needed for now.

The relief was palpable across global financial markets, with European stocks surging and Wall Street’s S&P 500 rising to a record closing high. U.S. benchmark Treasury yields moved back sharply from one-month lows.

“The easing of geopolitical tensions saw a reversal of yesterday’s movements in most asset markets. However, tensions remain high and suggest some further volatility in financial markets while the situation in Ukraine remains uncertain,” said Janu Chan, an economist at St.George in Sydney.

Renewed risk appetite also helped lift commodity currencies such as the Australian dollar, which popped back to $0.8970 from a low near 89 U.S. cents.

Investors, however, stayed clear of the euro given the risk that the European Central Bank could loosen monetary policy at Thursday’s review.

With euro zone inflation running well below the ECB’s target of just under 2 percent, the central bank is under pressure to do more to drag inflation out of a “danger zone” that threatens to stagnate the region’s fragile recovery.

The euro eased to $1.3736, pulling further away from Friday’s high of $1.3825. That helped the dollar index rise to 80.159, well off a two-month trough of 79.688 plumbed late last week.

While developments in Ukraine will continue to drive markets, China’s annual parliament meeting that starts on Wednesday will offer some distraction in Asia.

Premier Li Keqiang is expected to unveil economic targets and reform priorities for 2014 and expectations are that he will stick to gradual changes to avoid an economic shock.

Analysts have said maintaining last year’s target of 7.5 percent will give room for policymakers to drive reforms.

Evan Lucas, market strategist at IG in Melbourne, warned an even lower growth target could possibly be announced.

“Having seen China’s policymakers managing to change the perception that an 8-plus percent headline growth rate is needed to prevent unemployment (issues), his announcement could see GDP growth in 2014 in the low seven bracket,” he said.

For Australian dollar watchers, fourth-quarter gross domestic product due at 0030 GMT will be in focus.

Growth for the year is seen picking up to 2.6 percent, from 2.3 percent, thanks mainly to strength in exports as the mountain of money spent on mines boosts production.

Still, such an outcome would represent below-potential growth in an economy transitioning away from mining investment, an issue noted by the Reserve Bank of Australia on Tuesday as it held interest rates at a record low 2.5 percent.

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