(Corrects company name in third paragraph to American
International Group)
* Dollar rises vs yen on measures to shore confidence
* Yen falls broadly as risk aversion abates
* Paulson urges government: Spend billions on toxic debt
* U.S. stocks surge, 3-month U.S. T-bill rate rises
(Recasts, updates prices)
By Lucia Mutikani
NEW YORK, Sept 19 (Reuters) - The yen fell on Friday and
was set for its worst one-day drop versus the dollar in over
five months as steps by U.S. authorities to boost morale in
distressed financial markets revived global appetite for risky
trades.
U.S. Treasury Secretary Henry Paulson urged the government
to spend billions of dollars to deal with toxic mortgage assets
choking the financial system, while the Federal Reserve said it
would provide loans for purchases of high-quality asset-backed
commercial paper (ABCP) from money market funds.
Those developments pressured the yen, which had tapped
safe-haven flows from the markets turmoil, sparked by the
collapse of Lehman Brothers Holdings this week and forced the
government to bailout insurer American International Group.
"The picture has changed dramatically and the biggest loser
is the yen as risk appetite returns," said Ronald Simpson
Managing, director of global currency analysis at Action
Economic in Tampa, Florida.
The dollar rose as high as 108.06 yen <JPY=>, a 10-day
peak, according to Reuters data. It was last up 1.5 percent at
107.20 yen. It was on track for its biggest one day gain
against the Japanese currency since April.
The euro rose to 155.34 yen <JPYEUR=> at one point and was
last trading at $154.63, up 2.2 percent on the day. That buoyed
the European single currency against the dollar.
The euro was last up 0.6 percent at $1.4409 <EUR=>, after
earlier dipping to $1.4150.
STILL SOME SCEPTICISM
Paulson will ask Congress to take action next week on
legislation to calm the turbulence on financial markets.
Despite the initial optimism over the rescue plan, traders
said the FX market remained sceptical.
"There is a lot of scepticism in the market, and that seems
to be evident by the way the euro has rebounded, the pound,
Canadian and Aussie dollars too," said Jon Gencher, director of
FX sales at BMO Capital Markets in Toronto.
"The market is waiting to see how this whole thing is going
to pan out."
Shares on Wall Street powered ahead at the open, while oil
rose above $100 per barrel and gold climbed. The three-month
U.S. Treasury bill rate jumped near 0.80 percent at one stage
from around 0.26 percent earlier in response to the measures
to thaw the credit markets.
"It's all part of the program to restore confidence in
financial markets. They are absolutely petrified of just a run
on financial assets and they came very close to that on
Thursday," said Boris Schlossberg, director of currency
research at GFT Forex in New York.
"It seems to be working...risk aversion for the time being
has been stemmed."
Higher-yielding currencies such as the Australian dollar
also surged as investors regained some confidence. The Aussie
dollar rose as high US$0.8314 <AUD=> versus its U.S.
counterpart. It was last up 3.5 percent at US$0.8300.
At current prices, the Aussie was on pace for its best
one-day gain against the U.S. dollar in 10 years. The Aussie
jumped 3.5 percent against the yen to 87.80 <AUDJPY=>.
(Editing by Diane Craft)
