* Yen falls after Dubai says gets funds from Abu Dhabi
* Euro rises vs dlr, recovers to stand steady on day vs yen
* FOMC statement crucial for dollar's recent gains
By Satomi Noguchi
TOKYO, Dec 14 (Reuters) - The yen fell sharply and the euro
rose on the dollar after news that Dubai had averted a possible
debt default, encouraging investors to rush back into riskier and
higher-yielding currencies.
Dubai said it had received $10 billion from Abu Dhabi to help
it repay $4.1 billion in an Islamic bond maturing on
Monday.[]
Last month, news that government-controlled holding company
Dubai World might default rattled financial markets and led to a
sell off in the euro and riskier assets including the
high-yielding Australian dollar.
The dollar shot up against the yen by about 0.5 percent to
88.90 yen after the statement as currency players were forced to
cover short positions. The euro also jumped about 0.8 percent
before retreating to near 130 yen.
"The announcement eased concerns about the Dubai debt
troubles to some degree, but it will likely be temporary and the
positive impact on stock and currency markets seems to be
short-lived," said Jun Kato, a senior analyst for Shinkin Central
Bank Research Institute in Tokyo.
The yen had benefited when worries about Dubai were at their
height in November, hitting a 14-year peak against the dollar as
investors unwound risker trades and bought the Japanese currency
back.
The low-yielding yen tends to be used in carry trades to fund
investments into riskier assets, and it has a tendency to rise
when those trades get unwound.
It has retreated as those worries have subsided but was
gaining earlier in the day, when Asian stocks were sliding, as
investors unwound risky trades in currencies such as the
Australian dollar.
"Market players have been expecting this issue to move in
this direction. If this had not materialised, it would have given
people pause," said Kimihiko Tomita, head of foreign exchange at
State Street Global Markets in Tokyo.
When news of Dubai's debt woes emerged a few weeks ago,
market players had sold the euro and bought the yen, Tomita said.
Monday's statement may have helped spur some short-covering
in the euro against the yen, although such moves were likely
relatively mild, Tomita said.
The dollar pulled off the day's lows to stand 0.4 percent
down on the day at 88.65 yen <JPY=> after dipping as far as 88.36
yen earlier on trading platform EBS. It was well above a 14-year
low of 84.82 yen struck last month.
A manager for a Japanese trust bank said the currency market
reaction had been exaggerated by market positioning just before
the Dubai announcement, pushing dollar/yen and other yen crosses
higher in a short squeeze.
The euro was up 0.3 percent on the day at $1.4667 <EUR=> and
had recovered to stand at 129.95 yen, down 0.2 percent, after
falling as far as 129.19 earlier on EBS.
But the dollar's strength against the euro was still intact,
however, with speculation that the Federal Reserve would start
tightening faster than many had thought.
The Fed starts a two-day meet on Tuesday and is likely to
keep rates unchanged near zero. All eyes will be on the
accompanying statement and if the Fed reiterates a dovish bias
and does not fully acknowledge the recent run of strong data,
analysts say the dollar index could give up some recent gains.
(Additional Reporting by Masayuki Kitano, Charlotte Cooper and
Kaori Kaneko; Editing by Michael Watson)
