* China implements previously ordered ratio rise
* Euro hits 9-mth low, dollar at 1-mth low vs yen
* Aussie also sinks as risk reduction sets in
* BOJ stands pat, keeps interest rate steady at 0.10 pct
By Masayuki Kitano
TOKYO, Jan 26 (Reuters) - The yen jumped broadly on Tuesday
after China implemented a rise in some banks' reserves ordered
last week, touching off a fall in stock markets and a deeper
unwinding of trades in the euro and higher-yielding currencies.
The euro fell to its lowest in nine months against the yen,
the dollar dropped to a one-month low and the Australian dollar
plunged more than 1 percent against the Japanese currency as
selling in positions funded by the low-yielding yen snowballed.
China's central bank has told the banks that need to raise
their reserve ratios to implement that change on Tuesday,
banking sources said, refocusing market attention on China's
efforts to rein in its surging economy. []
It was China's latest step to curb lending and head off
inflation, something that has rattled investors around the world
on worries the global economy is not ready for less stimulus.
"The mood in the market is bleak and the environment clearly
seems to be shifting away from one of taking risks," said a
trader for a major Japanese trading firm.
He said the yen's rise and falls in equities were a
resumption of moves toward risk reduction seen last week, that
were triggered by factors such as jitters over a White House
proposal to curb risk-taking by banks.
"There might be some short-covering needs, but I don't think
anyone wants to conduct fresh buying of risky assets, it's too
scary," the trader said.
The dollar fell as low as 89.53 yen <JPY=> before edging
back to 89.75 yen, down 0.6 percent on the day, and the euro
tumbled to 126.20 yen <EURJPY=R>, its lowest since late May, to
shed more than 1 percent on the day.
"News on China redirected the market back to fearing that
China's liquidity may decline. And the market refocused on fear
that money may be withdrawn from risk-assets," said Jun Kato,
senior chief analyst at Shinkin Central Bank Research Institute.
The yen had slipped broadly earlier, as market players
braced for the possibility of yen-selling flows related to the
launch of a new Japanese investment trust on Tuesday.
Traders who built long positions in the dollar and the euro
against the yen on such expectations were later forced to trim
their positions.
The Australian dollar shed 1.4 percent to 80.45 yen
<AUDJPY=R>. Australian markets were closed for a one-day
holiday. It also fell 0.8 percent to $0.8972 <AUD=D4>.
The euro dropped 0.5 percent to $1.4082 <EUR=> and the
dollar index rose 0.3 percent to 78.432 <.DXY>.
In a volatile day, U.S. officials said President Barack
Obama would seek a three-year freeze on domestic spending in his
2011 budget. []
"Reductions in fiscal spending would be positive for the
dollar, since fiscal risk premiums would decline. You could also
say that behind this is optimism that the U.S. economy will be
OK even if spending is curbed," said Masafumi Yamamoto, chief fx
strategist Japan for Barclays Capital in Tokyo.
While financial markets would welcome any attempts by the
U.S. to gets its longer-term debt under control, others were
concerned a spending freeze now could rob the U.S. economy of
its new-found growth as its struggles to throw off recession.
This week has a series of event risks, including a U.S. GDP
reading on Friday and Obama's State of the Union address on
Wednesday. The market is also waiting to hear what the Federal
Reserve says at the end of its policy meeting on Wednesday.
The Bank of Japan kept interest rates unchanged at 0.1
percent as widely expected.
The central bank said it will maintain very easy monetary
conditions and added that it was important to pull Japan out of
deflation. [] []
(Additional reporting by Kaori Kaneko; Editing by Joseph
Radford)
