* Yen hits 6-week highs vs dollar and euro
* Dollar/yen, cross/yen drop seen led by short-term players
* Eyes on G8 summit
By Masayuki Kitano
TOKYO, July 8 (Reuters) - The yen hit its highest levels in
more than six weeks against the dollar and euro on Wednesday as
traders bet that a recent pullback in risk assets could provide
the impetus for a further rise in the Japanese currency.
Sterling hit a one-month low against the dollar after weak
industrial output data the previous day reinforced doubts about a
UK recovery. []
The dollar had fallen broadly since March, as hopes grew that
the worst of the global economic recession was over, boosting
risk appetite and prompting investors to shift funds out of the
safe-haven dollar into other currencies and assets.
But in recent weeks, market players have started to fret that
optimism about the global economy's recovery prospects and the
rally in risk assets may have been overdone.
Such doubts have helped pull currencies such as the
Australian dollar, sterling, and the euro off peaks hit in June,
and the dollar and the yen have risen in the past few weeks.
Currencies such as the euro and sterling extended their falls
against the yen on Wednesday, as short-term traders latched on to
the theme of risk reduction, said a trader for a major Japanese
bank.
"They are selling cross/yen, guessing that everyone else will
sell too," the trader said, adding that there was selling by both
Japanese players as well as macro hedge funds.
The euro fell 0.7 percent to 131.15 yen <EURJPY=R>.
Earlier, the euro fell to as low as 130.96 yen, its lowest
since late May.
The yen rose broadly, with the dollar hitting a six-week low
of 94.15 yen <JPY=> on trading platform EBS. Traders said
speculators sold dollars to try to push it down along with
cross/yen and the Nikkei share average's 2 percent drop. []
But the market saw plenty of two-way action, with Japanese
importers buying dollars and some investors also buying dollars
to defend options positions said to be just above 94 yen, traders
said.
"Turnover in dollar/yen trade picked up today. Dollar bids
keep coming, helping the market digest dollar offers," said a
forex trader at a Japanese trust bank.
Against the Japanese currency, sterling also reached its
lowest in more than a month of around 151.50 yen <GBPJPY=R>.
One broker specialising in forex margin trading said Japanese
retail traders were selling to unwind long sterling positions in
a general sell-off of riskier currencies against the yen.
Sterling dipped 0.2 percent to $1.6092 <GBP=D4>, hovering
near a one-month low of $1.6060 hit earlier in the day.
Sterling's fall came ahead of a Bank of England policy
decision on Thursday.
The central bank is expected to keep interest rates at a
record low of 0.5 percent and is seen likely to expand its 125
billion pound quantitative easing programme. []
The euro dipped 0.1 percent to $1.3906 <EUR=>.
Koji Fukaya, a senior currency strategist for Deutsche
Securities, said a full-fledged return to risk aversion was
unlikely.
"The trend towards a gradual economic recovery seems
unchanged. But markets had staged a V-shaped rebound and there
are questions about whether such moves can be sustained so there
has been some correction," Fukaya said.
Market players said they were watching for any comments in
the debate on the dollar's role as the world's reserve currency
before a three-day meeting of leaders of the Group of Eight
industrial nations and leading developing nations in Italy that
starts later on Wednesday. []
(Additional reporting by Rika Otsuka; Editing by Chris
Gallagher)
