* Yen surges as investors flee carry trades
* Global economic growth worries fuel risk aversion
* Traders describe widespread selling and deleveraging
By Shinichi Saoshiro
TOKYO, Sept 5 (Reuters) - The yen surged to a 13-month high
against the sliding euro on Friday as investors fled risky
positions such as leveraged carry trades, spooked by a sharp fall
in stock markets.
Escalating worries about global economic growth fed risk
aversion among investors and hammered equities, with Japan's
Nikkei share average <> tumbling 2.5 percent after a
sell-off on Wall Street.
Market players said investors were bailing out of
more leveraged carry trades, or positions funded by borrowing yen
at low rates to buy higher yielding currencies and commodities.
Traders cited talk of more hedge funds going under after news
earlier this week that Ospraie Management LLC, the world's
biggest commodities hedge fund, was forced to close its flagship
fund this week.
"This is not a flight to quality, it is simply a flight,"
said Alan Ruskin, chief international strategist at RBS
Greenwich Capital. "Gold for example has failed to benefit,
cash is king -- even the greenback, warts and all, or the yen,
zero rates and all."
The sudden downgrade in expectations has forced a wide array
of market players to unwind bets that favoured the euro,
Australian dollar, commodities and emerging countries.
"The fall in equities is a global trend, but the declines in
emerging countries, particularly Brazil and Russia, are more
pronounced," Tohru Sasaki, chief forex strategist at JP Morgan
Chase, said in a research note.
"Selling emerging currencies and buying back the yen is
gathering momentum."
The euro drew little support from comments by European
Central Bank President Jean-Claude Trichet, made after the
central bank left interest rates on hold, that were slightly more
hawkish than expected. []
The euro did react negatively to chairman of euro zone
finance ministers Jean-Claude Juncker's bearish view on euro zone
economic growth. []
The single currency came under further pressure after the ECB
on Thursday unveiled tougher rules on the assets banks can submit
as collateral in central bank lending operations, leading to
concern that banks would have a harder time accessing credit.
[]
The euro sank to a 13-month low of 150.60 yen before pulling
back to 152.44 yen <EURJPY=R>, down 0.6 percent from late U.S.
trade.
On Thursday, the euro plunged 3.6 percent against the yen --
the biggest one-day drop since the massive carry trade unwind in
1998.
The euro dropped 0.3 percent to $1.4279 <EUR=> after sliding
to a 10-month low of $1.4212 in frantic late U.S. trade.
Even the resurgent dollar succumbed against the yen, hitting
a six-week low of 105.67 yen and down 0.4 percent on the day at
106.72 yen <JPY=>.
"Everyone it seems is closing out positions," said a trader
at a Japanese trust bank. "Hedge funds are rapidly unwinding
carry trades, and Japanese institutional investors with assets
abroad are buying back the yen."
The Australian <AUDJPY=R> and New Zealand dollars <NZDJPY=R
-- long the bellwethers of the carry trade -- sank to two-year
troughs.
Bill Gross, chief investment office at PIMCO, the world's
largest bond fund, said the U.S. government should give the
Treasury the authority to buy debt and other assets to halt a
"financial tsunami". []
The chairman of the U.S. Federal Deposit Insurance Corp,
Sheila Blair, told bankers in Florida that they would need to
shore up their reserves to cover potential losses and that the
credit crisis is "far from over". []
(Additional reporting by Wayne Cole in Sydney; Editing by Chris
Gallagher)
