* Yen up as markets doubtful about strength of recovery
* Late recovery on Wall Street boosts euro, risk FX
* Thin trading conditions exacerbate moves
(Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Aug 27 (Reuters) - The dollar fell to multi-week
lows against the yen and euro on Thursday and commodity-linked
currencies rallied as a recovery in U.S. stocks and the price
of oil quelled some worries about the global economy.
Earlier, a slide in Chinese and European stocks stoked
caution about the global outlook, prompting investors to buy
the yen as a safe haven and sell perceived higher-risk
currencies such as the euro.
But a midafternoon rebound that took Wall Street stocks
back to levels last seen in October boosted the euro to a
three-week high against the dollar, though traders said low
volume was responsible for the ferocity of the reversal.
"It's a late August market. People were long dollars and
got squeezed when U.S. stocks recovered," said Brian Dolan,
chief strategist at Forex.com in Bedminster, New Jersey.
Those moves, he said, camouflaged a growing sense among
investors that recent asset price gains and optimism about a
world recovery have been overdone.
"Risk assets are not rallying as they have, and there's a
sense of lethargy setting in that certainly suggests enthusiasm
is waning," he said.
Dolan and other said that anxiety was partly responsible
for the yen's gains. The dollar fell 0.8 percent to 93.45 yen
<JPY=>, just above a five-week low touched earlier, while
sterling also hit its lowest level against the yen since July.
When risk aversion rises, investors often buy the Japanese
and U.S. currencies, either as safe havens or because they
needed to exit trades financed with cheap yen or dollars.
Some in the market said the yen was also supported by a
report that China's sovereign wealth fund was exploring
investment in Japan. <See []>.
The euro rose 0.8 percent to $1.4367 <EUR=>, surging higher
as a U.S. stock rebound triggered automatic buy orders against
the dollar. It had fallen as low as $1.4220 earlier. It was
down 0.1 percent at 134.13 yen <EURJPY=> but well off a session
low of 132.94 yen.
Sterling also erased earlier losses to rise 0.3 percent to
$1.6286 <GBP=>. The Australian dollar <AUD=> rose 1.6 percent
to $0.8403 <AUD=> while the U.S. dollar fell 1.3 percent
against its Canadian counterpart to C$1.0839 <CAD=>.
INVESTORS REMAIN CAUTIOUS
A revised report showing slower-than-expected contraction
in the U.S. economy in the April-to-June period and a decline
in weekly jobless claims soothed some nerves. But analysts said
the data wasn't as rosy as it may have first appeared.
"I just think that the market is getting ahead of itself
in terms of pricing in an improvement in the fundamental
outlook," said Win Thin, senior currency strategist at Brown
Brothers Harriman in New York.
He said that while data showed the number of U.S. workers
on long-term unemployment fell to its lowest level since April,
the "exhaustion rate" -- the percentage of unemployed workers
who couldn't find a job before drawing their last benefit check
-- rose to 50.7 percent in July, the highest since 1972.
Also troubling was a report from the Federal Deposit
Insurance Corp saying the number of problem U.S. banks and
thrifts rose sharply to 416 in the second quarter. The FDIC
also said the financial industry reported a $3.7 billion loss
in the second quarter. See [].
(Additional reporting by Gertrude Chavez-Dreyfuss in New
York; editing by )
