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Euro rallies as yen takes a tumble

NEW YORK: The euro raced to seven-week highs against the yen and rallied smartly against the dollar on Tuesday, boosted by weakness on Wall Street and talk that global leaders may help Japan weaken the yen.

The euro's gains against the Japanese currency also helped the dollar extend recent gains against the yen to seven-week peaks.

As US trade closed, the euro was up over 1.5 percent against the yen on the day at 109.58 yen, and rose more than three quarters of a percent against the dollar to $1.0332. The US unit was up nearly 1 percent against the yen at 106.07.

Traders said the yen, which has lost ground steadily since the start of the year, was weighed down afresh by speculation Tokyo might persuade finance ministers and central bankers from the Group of Seven wealthy nations meeting Jan. 22 to join efforts to tame the yen.

"From the G7's point of view the currency markets are doing what they want them to do," said currency strategist Tim Fox at Standard Chartered Bank.

"I doubt people believe there will be joint intervention. but with the yen backing off a bit, the euro appreciating a bit, there may be some language which gives explicit support of recent currency trends."

The Bank of Japan has intervened by selling yen on the foreign exchanges at least 14 times since June 1999 to curb industry-crippling strength in the currency.

Most recently it has been seen intervening several times in a bid to prevent the yen rallying beyond the four-year highs near 101.20 hit in December 1999.

A poor showing in US asset markets had also helped lift the euro against the dollar as jittery investors exited US assets.

At the close of trade the Dow Jones industrial average stood 61 points, or half a percent lower, while the technlogy-laden Nasdaq index shed 127 point or more than 3 percent.

That reversed the course set on Monday when US stocks -- and the dollar -- rallied on news Internet provider America Online Inc. and media giant Time Warner Inc. plan to merge. Dealers said the euro would continue to pin its hopes on less buoyant US asset markets, but that it would likely run into technical resistance near the session highs.

The European currency had little reaction to comments from European Central Bank Vice President Christian Noyer, who said US and European growth rates should converge in 2000 and the euro had room to rise.

"We're extremely confident that the potential of the appreciation of the euro that does exist will develop in the course of this year," said Noyer, speaking in Houston.

During European trading, the euro had ticked slightly lower after German engineering union IG Metall said on Tuesday its board recommended a pay raise of up to 5.5 percent for 2000.

Analysts called the pay demand excessive and said it might spark fresh fears of inflationary dangers, something currency traders said helped dent the euro briefly.

"I think people will interpret that as putting potentially inflationary pressure inside the euro bloc," weighing on the euro, said Rick Gomes, managing director of foreign exchange at HSBC in New York.

In other trade, sterling was sharply higher against the dollar amid speculation that British interest rates could be hiked as much as 50 basis points this week.-Reuters