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The euro climbed back towards an 11-week high against the yen and a five-week high against the dollar on Tuesday as a rise in regional share prices pointed to some recovery in appetite for risk.

The yen and the dollar slipped against higher-yielding currencies, with global stock markets having shown signs of stabilising over the past couple of weeks and currency market volatility lessening.

"The dollar and the yen had been bought before on risk aversion but the pendulum is swinging the other way," said a trader for a major Japanese bank.

"There has been a strange sort of alleviation in strains, a sense that a huge economic depression may be averted, and this seems to be spurring buying of the euro and the Australian dollar," he said.

The euro rose 0.6 percent to 128.15 yen , nearing the previous day's peak of 128.74 yen, which was the highest since late December.

The single European currency rose 0.4 percent against the dollar to $1.3016 , inching up towards Monday's high of $1.3072, which was the highest since Feb. 10. The dollar rose 0.3 percent against the yen to 98.44 yen .

During the global financial crisis the dollar and the yen have often been bought when risk appetite fell and worries about the outlook for the global economy intensified.

When risk appetite improves, the dollar and yen tend to come under pressure.

The yen's safe-haven appeal has, however, lost some of its lustre due to a rapid deterioration in Japan's economy, with the trade balance falling into deficit, and political uncertainty with an unpopular government facing an election that must be held by October.

The benchmark Nikkei share average rose 3.3 percent .N225.

EURO TO RALLY FURTHER?

With its rally this week, the euro is showing tentative signs of breaking above a range of around $1.2500 to $1.3000 that has held for the past month and a half, said a trader for a Japanese trust bank.
But it is still too early to say with conviction whether the euro is ready to break out of this zone, he said.

"If the euro can clear the $1.3000 level at the end of the week, expectations for a further rally will probably grow," the trader said.

The Australian dollar rose 0.4 percent against the yen to 65.01 yen , nearing a two-month high of 65.36 yen hit on Monday.

Against the dollar, the Australian dollar rose 0.3 percent to $0.6609 , hovering near a one-month high of $0.6638 hit on Monday. Australia's central bank decided this month to keep interest rates unchanged at a record low 3.25 percent, surprising many in the markets who had bet on a cut.

The minutes of that meeting showed that the Reserve Bank of Australia considered cutting interest rates again at its policy meeting earlier this month but chose to pause so as to gauge the effect of past easing. [ID:nSYC000169]

The Bank of Japan is seen likely to keep interest rates unchanged at 0.10 percent at a two-day policy meeting that ends on Wednesday [ID:nT314125].

source:Reuters

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