* Yen rises as risk aversion remains high
* Sterling falls on weak UK factory orders
* Euro losses capped by German factory data
* Market wary of Q2 earnings
(Updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, July 7 (Reuters) - The yen rose on Tuesday as
uncertainty about the global economic outlook and forthcoming
U.S. corporate earnings increased the safe-haven appeal of the
Japanese currency.
Sterling fell as weak industrial output data reinforced
doubts about a UK recovery. The euro dipped against the dollar,
but losses were capped by a surprise increase in German factory
orders that initially pushed it to a session high above $1.40.
When risk aversion rises, investors often cut holdings of
stocks and higher-yield currencies and buy back the yen and
dollars that were used to finance the trades.
"We've been getting very mixed signals, with some positive
data and some very poor data, so it's extremely difficult to
pinpoint direction," said Fabian Eliasson, vice president of
currency sales at Mizuho Corporate Bank in New York.
"As a result, people are backing out of high-yield assets
and into the yen and dollar. Now, the focus will turn to
corporate earnings as the main driver for the market."
The dollar was last down 0.4 percent at 94.95 yen <JPY=>
while the euro fell 0.6 percent to 132.44 yen <EURJPY=> and 0.2
percent to $1.3946 <EUR=>, according to Reuters data.
Sterling dipped to the day's low just above $1.61 after
data showed UK manufacturing output fell 0.5 percent in May,
confounding expectations of a 0.2 percent rise.[].
It last traded down 0.8 percent at $1.6148 <GBP=>.
"The risk is clearly that the 'green shoots' are turning
dry," said Michael Klawitter, senior currency strategist at
Dresdner Kleinwort in Frankfurt.
EARNINGS, G8
The Australian dollar <AUD=D4> was down 0.2 percent at
$0.7955 after the Reserve Bank of Australia left interest rates
at a record low 3 percent on Tuesday and left the door open to
more cuts. [].
Traders are bracing for second-quarter U.S. corporate
earnings, which will be released in coming weeks. Analysts said
poor results, especially from financial institutions, would
likely crank up dollar demand.
"If bank earnings disappoint in any way or the S&P breaks
crucial levels, traders will probably start reducing long
positions in (high-risk currencies) and the dollar could be bid
more," said Chris Turner, currency strategist at ING in London.
Analysts were also keeping an eye on this week's Group of
Eight leaders summit that starts in Italy on Wednesday.
China, Russia and Brazil have said they will push their
view that the world needs to start seeking a new global reserve
currency as an alternative to the dollar, though they admitted
such a shift would take time.
A draft of the communique obtained by Reuters made no
reference to the issue [].
U.S. President Barack Obama and Russian Prime Minister
Vladimir Putin did not discuss oil prices or the dollar in
Moscow on Tuesday, according to a U.S. official.
(Additional reporting by Nick Olivari; Editing by Andrea
Ricci)
