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FOREX-Yen trims losses on dark econ mood, Goldman report

Published 12/02/2008, 01:46 AM
Updated 12/02/2008, 01:48 AM
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* Yen trims losses to be near 5-week high vs dlr

* Report of Goldman Sachs losses revives risk aversion

* Aussie falls after RBA cuts rates by 100 basis points

By Satomi Noguchi

TOKYO, Dec 2 (Reuters) - The yen trimmed losses on Tuesday to trade near a five-week high, as stocks worldwide slid on a increasing economic gloom and after a report on possible net losses at Goldman Sachs Group revived risk aversion.

The yen had been under pressure earlier from domestic investors, which traders attributed to a trimming of speculative bets against the dollar.

"Investors covered their short positions accumulated since last week. But they basically remain risk averse and there is a possibility that the yen will resume its rally if U.S. stocks continue to fall," said Kwanga-ja Kim, deputy general manager at Shinsei Bank.

The dollar was nearly flat at 93.19 yen, after rising to the day's high of 93.83 yen from a five-week low of 92.87 yen on trading platform EBS.

Caution grew after the Wall Street Journal reported that Goldman Sachs, known for having avoided much of the damage that has battered its Wall Street rivals, is likely to report net losses of as much as $2 billion for its latest quarter.

Market players said that the yen was likely to continue to find support as risk appetite was low in the wake of recent data underscoring the weakness of economic fundamentals worldwide.

Manufacturing data in the United States fell in November to its weakest since the 1981-1982 recession.

The U.S. economy was also confirmed to have fallen into a recession nearly a year ago and Federal Reserve Chairman Ben Bernanke said the central bank is mulling extreme policy measures such as buying more government bonds to revive growth.

The Nikkei share average dropped 6 percent with stocks in Hong Kong and Taiwan also falling about 5 percent at one stage.

Moves in equities are seen as a barometer of investor risk appetite, and stock falls can lead to the unwinding of carry trades, in which investors sell low-yielding currencies like the yen to invest in higher-yielding currencies and assets.

The euro was little changed at 117.60 yen, after rebounding as high as 118.53 yen from the day's low of 117.23 yen. Against the dollar, the euro rose 0.1 percent to $1.2620.

"The trend for stronger yen is intact as the economic downturn could be even deeper ahead into the New Year," said a manager at a Japanese trust bank.

"We see euro/yen falling towards 110 yen at the end of this month and eventually to 100 yen," the manager said.

The Australian dollar fell in volatile trade after the Australian central bank lowered interest rates by 100 basis points to 4.25 percent, broadly in line with prior market expectations.

The Australian dollar was down 0.5 percent at $0.6369. It had rebounded above $0.64 briefly after the decision.

Market players have now shifted their focus to rate decisions from The Bank of England, the European Central Bank and the Reserve Bank of New Zealand later this week.

The Bank of Japan held an emergency policy meeting and announced the central bank will accept wider range of corporate debt as collateral in money market operations to help ease a squeeze in credit markets.

The BOJ held interest rates steady as expected at the meeting, which will be followed by news conference comments from Governor Masaaki Shirakawa, due for release around 0700 GMT. (Additional reporting by Kaori Kaneko and Masayuki Kitano; Editing by Edwina Gibbs)

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