Dollar gains versus yen

The dollar had its best day against the yen in seven months in choppy trading on Thursday, boosted by sharp gains in US stocks as risk aversion waned amid a stream of measures to help ease a global credit crisis. Higher-yielding currencies such as the Australian and New Zealand dollars, which have been pummelled as the financial stress worsened in recent sessions, also gained, with improving money market conditions helping support both units.
Over the last few months, the greenback has benefited from buying of safe-haven US Treasuries or highly liquid dollar instruments by nervous investors worried about a global meltdown. These investors have assumed that the United States is still the safest place in times of distress given the way the government has aggressively tackled the credit crisis.
In late trading, the dollar rose 2.0 percent against the low yielding yen to 101.67, its largest one-day gain since March. The yen tends to rise in times of increased risk aversion as investors unwound risky carry trades funded using the Japanese currency's low interest rates to buy assets in higher-yielding units.
The euro also gained versus the yen, rising 1.8 percent to 136.71. The dollar held its own against the euro despite unsettling news out of the United States on Thursday when data showed mid-Atlantic regional factory activity plunged to an 18-year low while overall US industrial output posted its biggest monthly slide since 1974. The euro was down slightly at $1.3445.
US economic reports, however, are for now taking a back seat to the global credit crisis. In another volatile trading day, US stocks closed sharply higher but not after going through several peaks and valleys all throughout the session. But Thursday's upward trend in stocks helped elevate the dollar against the yen.
In the money market, most interbank loan rates fell amid more drastic steps by central banks to provide funds, improve bank balance sheets, and free up credit lines to cash-strapped firms. Sizeable declines were seen in dollar and sterling Libor at the short end from overnight to two weeks.
Overall, however, the cost of funding was still prohibitive. The Libor premium over anticipated policy rates - a key gauge of financial market dislocation - rose as growing fears of recession affirmed expectations of interest rate cuts from central banks world-wide.
Still, the generally positive mood in the money market has helped improve risk appetite, underpinning the Australian and New Zealand dollars. The Aussie surged 5.9 percent to US $0.6895, while the Kiwi dollar rose 3.4 percent to US $0.6173. Sterling also gained versus the US dollar, rising 0.8 percent to $1.7324, boosted partly by a Bank of England move that makes it easier for British financial firms to borrow from the central bank.