May 5, 2014 / 2:50 PM / in 4 years

FOREX-Yen hits two-week high vs dollar on soft China data

* Weak aspects of April jobs report put early pressure on
dollar
    * Stronger-than-expected services data stem greenback's fall
    * Swedish crown falls after data show industrial output
declines
    * Volume light on U.K., Japanese holidays

 (Updates market action, changes byline, dateline, previous
LONDON)
    By Richard Leong
    NEW YORK, May 5 (Reuters) - The yen climbed to a two-week
high versus the dollar on Monday after data showed China's
manufacturing activity contracted for a fourth straight month,
spurring safe-haven demand for the Japanese currency.
    The dollar was marginally weaker against other major
currencies as benchmark U.S. Treasury yields fell to a
three-month low despite a strong April payroll figure, nicking
the appeal of U.S. investments and the greenback.
    "That's at the heart of the dollar's recent weakness. The
dollar won't move up meaningfully until yields rise," said Omer
Esiner, chief market strategist at Commonwealth Foreign Exchange
in Washington.
    Analysts blamed depressed U.S. yields on traders exiting
bets against U.S. Treasuries and on demand for low-risk
government debt as the conflict between the Ukraine government
and pro-Russia separatists rages on.
    Benchmark 10-year yields slipped to a
three-month low of 2.572 percent and were last at 2.579 percent.
    The greenback fell as low as 101.86 yen, its
weakest since April 17 and down more than 1 yen from Friday's
near one-month high of 103.025 yen on the EBS trading platform.
It last traded at 101.935 yen, down 0.25 percent on the day.
    The dollar index, which gauges the greenback against
six other currencies, was slightly lower at 79.493, which was in
the low end of this year's trading range.
    The dollar retraced its earlier decline after encouraging
U.S. services sector data suggested the world's biggest economy
regained momentum after a harsh winter.
    The Institute for Supply Management said its services sector
index rose to 55.2 in April, its highest level in eight months
and topping a forecast of 54.1. A reading of 50 indicates
expansion. 
    Volumes are likely to be thin this week, with Japanese
markets closed on Monday and Tuesday for public holidays. Banks
in London, the biggest market, were shut on Monday.
    
    DOLLAR ON THE DEFENSIVE
    An encouraging U.S. labor report had initially buoyed the
dollar on Friday, but gains faded as investors instead focused
on stagnant wage growth and people leaving the workforce. 
    The dollar lost further ground against the yen on Monday
after a private survey showed China's manufacturing activity
remained weak in April, adding to signs the world's
second-largest economy is losing momentum. 
    The dollar managed to hold steady against the euro at
$1.3883, holding above Friday's intraday low of $1.3812.
With the European Central Bank expected to keep rates unchanged
on Thursday after inflation climbed in April, investors could
lift the euro towards $1.3900-1.3950, just short of the key
$1.400 level where analysts project the shared currency should
top out.
    The euro gained against the Swedish crown after dismal data
from Sweden. It rose to 9.0895 crowns on a report
showing Swedish industrial production fell 3.8 percent in March,
making a sharp slowdown and putting pressure on the Riksbank to
cut rates when it meets next in July.   

 (Additional reporting by Anirban Nag in London and; Masayuki
Kitano in Singapore; Editing by Meredith Mazzilli)

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