* Euro backs off 10-month high of $1.4283 hit post-Fed
* Dollar index edges off 11-month low but rebound small
* Dollar/yen slips after BOJ keeps asset fund size steady
By Charlotte Cooper
TOKYO, Nov 5 (Reuters) - The dollar paused near fresh lows on
Friday after breaking down to a new 2010 trough against a basket
of currencies, but investor appetite for risk was expected to
continue and grind the low-yielding greenback down.
The dollar index <=USD><.DXY> hit an 11-month low on Thursday
in the aftermath of a decision by the Federal Reserve to buy
government bonds, opening the way for a possible test of its 2009
low of 74.17. It edged up on Friday but still looked vulnerable.
The euro hovered near $1.4200 <EUR=> after soaring as far as
$1.4283, its strongest since late January, while the dollar pared
small early gains on the yen, edging closer to its 1995 postwar
record low of 79.75 yen <JPY=>.
The Fed's commitment this week to open-ended purchases of
Treasuries, implying low funding costs, has renewed the focus on
the dollar as a funding currency for purchases in commodities,
emerging markets and higher-yielding currencies.
Highlighting the risk-on sentiment that has characterised
markets' reaction to the Fed's plan to pump in more money, share
markets around Asia rose on Friday, while gold hit a record high
and palladium a nine-year high.
One senior trader at a bank in Hong Kong said money flowing
into higher yielders and Asian markets was real investment flow
rather than short-term speculative funds.
"I think there's still quite a lot of money sitting in cash
around the world and people realise that you've just got to be
invested, so that cash has to find a home somewhere," he said.
"It's generally going to end up in equities and people are
worried about the inflationary implications of QE over the long
term, so I think money is going out of bonds into equities as
well."
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Link to PDF on Fed decision: http://r.reuters.com/cyh73q
For more stories on Fed policy: []
Graphic on assets and QE http://r.reuters.com/kyw48p
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The dollar stood at 80.79 yen, up 0.1 percent from late New
York levels but well within range of its latest 15-year low of
80.21 set on Monday and perilously close to the record low.
The Bank of Japan concluded a policy review without easing
policy further after the Fed's decision, and the yen firmed
slightly after the announcement on slight disappointment there
was no expansion to its asset buying plan in response to the Fed.
Analysts expect some weakening in Japan's economic indicators
ahead and some say more easing through asset-buying will be
needed.
"Yen strength feels as if it is coming home to roost," said
Robert Rennie, chief strategist at Westpac in Sydney. "Now is the
time for the BOJ to start to stand up and deliver."
On the crosses, the yen lost ground this week against the
euro and the Aussie dollar, falling to its lowest since May at
82.15 yen per Australian dollar <AUDJPY=R> on Thursday.
A fall in yen option volatilities has helped boost the
crosses, as it encourages carry trades by suggesting less risk of
currency market swings, a trader at a European bank said.
One-month dollar/yen <JPY1MO=> option volatility has fallen
after the Fed decision but it still remains above the levels seen
earlier in the decade, and the latest rise in cross/yen was more
likely a knee-jerk reaction to falling volatilities than a real
increase in carry trade flows, the trader said.
U.S. monthly jobs data is in focus later in the day, after
the Fed's asset-buying decision was accompanied by a pledge to
review the programme regularly "in light of incoming information"
and adjust it to better foster employment and price stability.
Economists in a Reuters poll expect 60,000 jobs were created
in October after 95,000 were lost in September. Brian Kim at UBS
said numbers broadly in line with its forecast for a rise in
nonfarm payrolls of 70,000 were unlikely to help the dollar at
the moment.
"But if the data surprises strongly on the upside, the dollar
could temporarily strengthen and both risk-seeking positions and
dollar shorts could face some profit-taking into the weekend," he
wrote in a client note.
The euro dipped 0.1 percent to $1.4193 <EUR=>. Traders report
options barriers at $1.43.
Technical strategists also flagged as next targets the
$1.4370 area, a 78.4 retracement of the euro's fall from November
to June, and then $1.4580, the euro's January high.
The Australian dollar dipped 0.1 percent to $1.0136 <AUD=D4>
after climbing as far as a 28-year peak of $1.0177 on Thursday.
The central bank, which raised rates by 25 basis points this week
to 4.75 percent, sounded upbeat in quarterly remarks but offered
no surprises.
(Additional reporting by Masayuki Kitano and Hideyuki Sano;
Editing by Michael Watson)
