By Masayuki Kitano
TOKYO, Feb 26 (Reuters) - The yen edged up on Tuesday as
Tokyo shares gave up early gains and fell, prompting some mild
selling of higher-yielding currencies that dragged the Australian
dollar down from three-month highs.
The yen had fallen across the board on Monday after Standard
& Poor's affirmed the top-notch credit rating of U.S. bond
insurer MBIA Inc <MBI.N>, easing some concerns about ailing
credit markets and giving a boost to riskier assets like stocks.
The possibility of an imminent rescue plan for bond insurer
Ambac Financial Group Inc <ABK.N> also helped improve investor
confidence.
But Japanese shares slipped, partly as investors booked
profits on the rise in the Nikkei share average <> to a
six-week high. Other Asian equity markets were mixed on the day.
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The dip in stocks nudged the high-yielding New Zealand dollar
down from to a 23-year high of $0.8153 <NZD=D4>. The Australian
dollar pulled back after reaching three-month peaks against the
dollar <AUD=D4> and the yen <AUDJPY=R>.
A greater willingness to hold risky positions often prompts
investors to return to carry trades in which they borrow the
low-yielding yen to fund investments in higher-yielding
currencies and assets.
"No one thinks the monoline issue will resolve everything,"
said Akira Kato, senior manager for the Bank of Tokyo-Mitsubishi
UFJ's foreign exchange trading department.
"When there is some positive news, you do see some moves back
toward risk-taking positions and away from positions aimed at
avoiding risk. But such moves are still pretty limited," he said.
The dollar dipped 0.1 percent on the day to 107.87 yen
<JPY=>, having fallen back from the day's highs near 108.15 yen.
The euro was steady at $1.4810 <EUR=>, near a three-week high
of $1.4863 hit on electronic trading platform EBS on Friday.
Against the yen, the euro dipped 0.3 percent to 159.78
<EURJPY=R>, pulling away from Monday's peak of 160.43 yen -- what
was the highest since mid-January.
Concern that financial firms may suffer greater losses if the
bond insurers lose their top-notch ratings, leading to ratings
downgrades on the fixed-income securities they back, have kept
investors on edge since the start of the year.
INTEREST RATE OUTLOOK
Traders awaited the German Ifo business sentiment survey for
February due later in the session for fresh clues on the health
of the euro zone economy and what it means for the interest rate
outlook.
"There has been a focus recently on inflation," said Bank of
Tokyo-Mitsubishi UFJ's Kato, noting that Germany's biggest labour
union, IG Metall, won a 5.2 percent headline pay increase last
week.
That pay increase was the highest in 15 years and equivalent
to an annualised rise of more than 4 percent.
"If the Ifo survey shows a significant improvement from the
previous month, the euro's upward trend could strengthen," Kato
said.
Traders said the dollar continued to be held back by concerns
of a possible U.S. recession and the prospects of further
interest rate cuts by the Federal Reserve.
"Currencies with a clear direction in monetary policy are
supported, such as the Australian dollar with expectations for
rising interest rates, and a rate cut outlook is weighing on the
U.S. dollar," said Shogo Nagaya, forex manager at Nomura
Securities. "The euro is steady as views receded for a near-term
rate cut.
"Flows linked to the difference in yields are back, in
addition to the return of some risk appetite," he said.
U.S. January producer price inflation data will also be
released on Tuesday, and Federal Reserve Vice Chairman Donald
Kohn is due to speak on the domestic economy and monetary policy.
(Additional reporting by Chikako Mogi; Editing by Eric
Burroughs)
