* Euro hits 9-month low on yen as stop losses triggered
* Yen-funded carry trades unwound as risk appetite suffers
* Obama's plans to regulate banks further hits sentiment
* Dollar softens on index, vs euro, Aussie
By Charlotte Cooper
TOKYO, Jan 22 (Reuters) - The yen surged against the dollar
and the euro on Friday as a break of key support triggered
stop-loss sales, while risk appetite lessened due to the White
House's proposals to regulate U.S. banks.
The euro tumbled to a nine-month low of 126.55 yen <EURJPY=R>
after breaching a long-held chart support at 127.00 yen, taking
the dollar down with it to its weakest in a month.
Both later trimmed the steepest of their losses, but the
dollar slipped broadly as investors tried to assess what the
White House plan meant for the greenback and U.S. assets.
High-yielding and commodity-linked currencies such as the
Australian and New Zealand dollars also fell against the yen,
partly on the U.S. plan and still undermined by worries that
China may further tighten monetary policy in the coming weeks.
"The major trend in the market is to reduce risk positions,"
said a senior trader at a European bank in Tokyo.
The euro, which has been sold heavily this week on concerns
about Greece's fiscal problems, later found buyers at its lows,
with traders reporting leveraged accounts and Japanese life
insurers buying euros for dollars and yen.
It fell 0.2 percent on the day to 127.09 yen <EURJPY=R> and
pulled up from a six-month low of $1.4029 <EUR=> set on trading
platform EBS on Thursday to gain 0.3 percent to $1.4124.
It has lost about 1.5 percent against the dollar this week
and 2 percent on the yen.
The senior trader said 127.00 was a critical level for the
euro as a close below there this week would signal further falls.
Some said the next target was around 124.50 yen, near its low
in April, while others looked to 125.70, a 50 percent retracement
of its climb from last January's low near 112 to June's high
above 139.
President Barack Obama's proposals include preventing major
banks from owning, sponsoring or investing in hedge funds for
their own profit. [].
"I can't say I'm convinced of the wisdom here," said Adam
Carr, a senior economist at ICAP. "A bigger threat to the
recovery and one I think we can all agree on is the growing
prospect of over-regulation."
The plan drove down bank shares, Wall Street and share
markets in Asia and pushed up Wall Street's fear index <.VIX>.
The proposed rules would also bar institutions from trading
solely on their own behalf.
Traders said this was also a worry, as prop trading, as it is
known, can be a source of profits for banks and bring liquidity
to markets.
The dollar fell to its lowest in five weeks, dropping as far
as 89.78 yen <JPY=> before returning to 90.00, although it still
shed 0.5 percent on the day. Support is seen at 88.80/90 yen, an
area it bounced from in mid-December.
Analysts said the market was still trying to figure out how
to play the dollar in response to Obama's proposals.
Sue Trinh, a senior currency strategist at RBC Capital
Markets in Sydney, said one school of thought was to buy the
greenback based on the view that the plans heightened investor
avoidance of risk, as seen in falling share markets.
"Or do you play U.S. dollar weakness given these proposals
have a perceived weakening of the U.S.' competitive advantage in
the global capital markets? At the moment the jury is still out."
A slew of U.S. data and a Federal Reserve policy meeting,
both next week, are also likely to keep the market in
risk-reduction mode, traders said.
The dollar index <.DXY> <=USD> eased 0.2 percent to 78.192,
just below its 200-day moving average at 78.48, which was seen as
a zone of short-term resistance.
The Aussie <AUD=D4> dipped to its lowest in almost a month at
$0.8983 <AUD=> as risk positions were cut.
Concerns that China will tighten lending and monetary policy
have dragged commodity currencies down and were reinforced on
Thursday by strong growth data and fears that inflation was
starting to pick up pace.
The Aussie was also hit by a report that the Australian
government could raise taxes on mining companies, which have been
making bumper profits from surging metals and coal prices.
[]
The New Zealand dollar dipped to its lowest in almost a month
against the dollar but both it and the Aussie later benefited
from some end-of-week dollar profit-taking.
They slid to their lowest in about a month against the yen.
One dealer at a Japanese securities house said Japanese
retail investors were mostly staying on the sidelines while
another said pension funds were buying back the Aussie dollar and
the New Zealand dollar against the yen, helping the pairs off
lows.
(Additional reporting by Anirban Nag in Sydney, Satomi Noguchi,
Kanori Kaneko and Shinichi Saoshiro in Tokyo)
