The yen rose broadly on Tuesday to extend gains made the previous day as regional stocks fell after a slide on Wall Street, prompting investors to further reduce investments in risky assets. The dollar edged down against a basket of currencies towards Monday's four-month low but held firm versus the euro, with investors taking profits from gains in other riskier currencies that had been lifted by optimism about the US banking system.
The yen drew some support after news that China's exports in April fell more than expected, denting expectations that the worst of the contraction in trade flows triggered by the global financial crisis is moderating. But the impact was offset by other data indicating the pace of Chinese fixed-asset investment growth in urban areas has gathered momentum, suggesting Beijing is succeeding in cushioning the effect on the economy of contracting exports.
"The market returned to being a little more cautious about reading economic fundamentals after optimism reigned in the past few months," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank. "The key this week will be to see how much more profit-taking will come, with eyes on economies in emerging markets which give basic support to market hopes," Inoue said. Traders said investors may continue to lighten positions and buy back dollars and yen they used to fund investments in higher-yielding currencies such as the Australian dollar.
"I think the market has come to a turning point in terms of both technical moves and fundamentals. Stocks and cross-yen have risen helped by a view that the economic deterioration is slowing," said Jun Kato, deputy general manager at Shinkin Central Bank. "But fundamentals per se are still weak, so the market is expected to show more vulnerability to the weak side of the economy as it has excessively priced in the positive side of it," he said.
But hopes that the worst of the economic slump and financial crisis are over also remained strong, and that in turn provided some support to the euro and the Aussie, traders said. "We've seen a bit of retracement in stocks as well as risk. The yen crosses have come off and the dollar is a bit stronger but not much," said a trader at a European bank in Hong Kong.
"It's a little dependent on stocks and it's hard to see where the fresh buying in the stock market comes from after a very decent rally so far," the trader said. The dollar fell 0.2 percent from late New York trade to 97.29 yen after dropping as low as 97.13 yen earlier on trading platform EBS, sliding back in the middle of a range for the past few months of 95-101 yen.
The euro was nearly flat at 132.37 yen, erasing earlier losses to 131.77 yen on EBS. The dollar index, a gauge for the greenback's performance against six major currencies, slipped 0.2 percent to 82.681, trimming Monday's rebound from a four-month low of 82.292 touched earlier that day.
The euro edged up 0.2 percent to $1.3605, after sliding the previous day as low as $1.3557 on EBS from a seven-week peak of $1.3670 hit earlier on Monday. Tokyo's Nikkei share average slipped 1.4 percent by late trade after booking a six-month closing high the previous day, while Chinese stocks dipped 0.1 percent. After Chinese trade data, investors were looking to its retail sales and industrial production data for April due out on Wednesday to see if they provide some direction to the market, traders said.
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