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FOREX-Yen up after report about China's bank capital rules

Published 08/21/2009, 01:01 AM
Updated 08/21/2009, 01:06 AM

* Dollar hits one-month low vs yen

* Traders cite reports China may tighten bank capital rules

* Dollar pressured by Japan exporters and hedge fund selling

* Yen surges broadly, Aussie/yen slides 1.4 percent

By Masayuki Kitano

TOKYO, Aug 21 (Reuters) - The yen surged to a one-month high against the dollar on Friday, as traders fretted that Chinese shares could take a hit following a report about Chinese measures to tighten banks' capital rules.

The dollar fell to as low as 93.47 yen on trading platform EBS, its lowest in a month, and the Australian dollar slid 1.5 percent to 77.08 yen.

Sources said earlier this month that China's banking regulator, concerned record lending could lead to a spike in bad loans, may tighten banks' capital rules by excluding subordinated bonds they sell to other banks from their capital base.

Some financial regulators estimate that as much as one-fifth of banks' new loans have flowed to China's surging stock and property markets this year, creating asset-price bubbles.

A similar report by Bloomberg News on Friday re-focused attention on this issue, traders said.

"People are thinking that this could trigger selling of equities," said a trader for a Japanese brokerage house.

Such concerns exacerbated a fall in the dollar against the yen, he said, adding that the dollar had already been under pressure due to selling by Japanese exporters and hedge funds.

Moves in Chinese equities have been a key driver of currency moves, especially during Asian trading hours, with the yen often getting a lift against other currencies when Chinese shares fall.

After trimming some losses, the dollar was down 0.6 percent against the yen at 93.65 yen.

Chinese shares were last up 0.7 percent.

Chinese stocks had recouped 4.5 percent on Thursday, posting their second-biggest daily percentage gain of the year, as modest signs of official support for the market helped to trigger technical buying after a 20 percent dive in the two weeks to Wednesday's close. (Editing by Chris Gallagher)

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