By Masayuki Kitano
TOKYO, Jan 23 (Reuters) - The yen regained its footing
against higher-yielding currencies on Wednesday as worries about
financial market turmoil lingered despite an emergency interest
rate cut by the U.S. Federal Reserve.
Higher-yielding currencies rose initially after the Fed cut
the federal funds rate by 75 basis points to 3.5 percent on
Tuesday in the biggest cut in 23 years, but later pared their
gains as a rebound in regional shares lost some steam.
Asian stocks rose a day after the Fed's move, reversing a
recent plunge triggered by a wave of panic selling in global
equities.
But they trimmed some of their initial gains as concerns of
U.S. weakness trickling into other economies curbed a willingness
to take risky positions.
Moves in equities markets are regarded as a barometer of
investors' appetite for risky carry trades, which involve selling
the low-yielding yen to buy higher-yielding currencies and
assets.
"On the one hand there are people who look favourably toward
the fact that the Fed acted at this juncture, saying it took
quick action to support the economy," said Akira Kato, senior
manager for the Bank of Tokyo-Mitsubishi UFJ's foreign exchange
trading department.
"But it's also true that the 75 basis point rate cut alone
wasn't sufficient to totally calm the turmoil in financial
markets or dispel expectations for a slowdown in the U.S.
economy," Kato said.
The dollar initially rose nearly a full yen from levels in
late U.S. trading on Tuesday to around 107.40 yen, but later
erased all of its gains and fell back to 106.30 yen <JPY=> as of
0541 GMT, a loss of 0.1 percent on the day.
The euro fell around 0.1 percent against the Japanese
currency to 155.59 yen <EURJPY=R>, down sharply from the day's
highs of around 157.15 yen.
The euro <EUR=> climbed as much as 0.4 percent to the day's
high around $1.4685 in early Tokyo trade, extending its rally
after surging 1.3 percent on Tuesday, its biggest one-day
percentage gain since early 2006.
But it later relinquished its gains to stand at $1.4637,
little changed from late U.S. trading on Tuesday.
RISKY ASSETS
The euro was supported as the European Central Bank's 4.0
percent interest rate now eclipses the federal funds rate, but
some traders doubted the euro would rally aggressively as the Fed
move could pressure the ECB to lower rates.
Financial markets see a good chance that the Fed will lower
interest rates by another half point at its policy meeting on
Jan. 29-30.
"The bounces that we've seen in risky assets have been
short-covering rather than fresh longs," said Sean McGoldrick,
head of forex trading at Morgan Stanley in Tokyo.
"A lot of people are now thinking it's a bear market,"
McGoldrick said.
Japan's benchmark Nikkei share average surged 3.4 percent by
midsession, but later trimmed its gains and was up 1.8 percent
<> in afternoon trading.
The Australian dollar fell 0.3 percent to 86.64 U.S. cents
<AUD=D4>. Against the yen, it slid 0.6 percent to 92.07 yen
<AUDJPY=R>.
Earlier, the Australian dollar rose after data showed that
the nation's core inflation rate accelerated by its fastest pace
in 16 years, keeping intact expectations for a domestic rate
rise.
(Additional reporting by Naomi Tajitsu)
