* Yen hits 14-year high on dollar, through 85 yen
* Pro-risk trades unwound on concerns about Dubai debt
* But FX and other markets steady, recover some ground
* Japan finmin raises prospect of G7 joint statement on FX
(Updates prices, adds quote)
By Jamie McGeever
LONDON, Nov 27 (Reuters) - The yen hit a 14-year high versus
the dollar and rallied broadly on Friday, while the dollar
jumped against most other currencies as investors cut carry
trades and risk exposure on concern about Dubai's debt problems.
By mid-session in London, however, exchange rates had
recovered some ground and were trading in narrower ranges, while
volatility had eased.
Earlier, Japan signalled growing discomfort with the yen's
surge -- it briefly broke the 85 yen per dollar level -- and
suggested it would be open to a Group of Seven joint statement
on currencies to cool the rally.
Market sources said the Bank of Japan checked exchange rates
earlier in Asian trading with Japanese commercial banks, raising
fears of outright intervention, although analysts say this is
unlikely right now.
But the speed and scale of dollar/yen's fall was such that a
recovery was always likely, particularly after Japan's Finance
Minister Hirohisa Fujii said the moves were "extreme" and it was
possible Japan could respond.
The sharp declines in other markets were also reversed or
pared back by mid-session in London. European banking stocks
were up half a percent on the day, having fallen at the open
<.SX7P>.
French banks said they had limited exposure to the Dubai
debt crisis and Bank of Italy Director General Fabrizio
Saccomanni said Italian banks had "very limited" exposure.
Dubai struggled to ease fears of debt default on Thursday
after its move to delay repayments at two flagship firms shook
confidence in the Middle East and raised the prospect of further
huge debt write-offs for banks. []
"The market is taking a breather. Volatility had soared in
early hours after the risk trade headed for the exits in thinned
liquidity," said Jane Foley, chief strategist at FOREX.com.
"It is likely to take at least a few days before the
implications of the impact of a possible default from Dubai are
properly digested but for the present it seems that the market
is seeing this negative news as a blow to the global recovery
but not one that will push it off course," she said.
JAPAN IN SPOTLIGHT
The dollar fell as far as 84.82 yen <JPY=>, its weakest
since 1995 and ever closer to its record low of 79.75, before
pulling back up to 86.50 yen at 1200 GMT, flat on the day.
At 1230 GMT the dollar index, a measure of its value against
six major currencies, was up 0.6 percent at 75.29 <.DXY>, having
been up around 1 percent earlier.
The euro was down 0.75 percent at $1.4900 <EUR=>, having
earlier slid as low as $1.4830 <EUR=>, more then three cents
down from a 15-month high of $1.5144 reached on Wednesday.
Other assets were also hit before regaining some ground:
U.S. stock futures showed Wall Street opening down 2.5 percent,
oil was down 4.5 percent <CLc1>, and gold <XAU=> and silver
<XAG=> lost 3 and 4 percent, respectively.
"FX markets are nervous as Dubai debt contagion fears
fuelled a flight to quality bid, which favoured the dollar. The
yen benefited via the crosses, but FX intervention risk rose
significantly overnight," said Russell Bloom, analyst at Action
Economics in London.
"But early liquidation of speculative positions has been
absorbed by those placing their faith in BoJ action," he said.
Implied volatilities on one-week euro/dollar currency
options <EURSWO=> rose to 13 percent earlier, a high not seen
since June.
One-week implied volatilities on dollar/yen options surged
above 18 percent <JPYSWO=> for the first time since April,
sharply up from a 2009 low of 5 percent earlier this week.
Japanese Finance Minister Hirohisa Fujii raised the prospect
of a G7 joint statement on currencies and said a government
response to extreme moves was possible. []
While some analysts said the G7, or the bigger G20, could
issue a statement to prevent the dollar from weakening further,
or Japan could step in alone, others doubted the chance of joint
intervention above 80 yen.
(Reporting by Jamie McGeever; editing by Matthew Jones)
((Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net;
+44 207 542 8510))
