20000303Dollar turns into loser as yen soars

NEW YORK: The dollar was the biggest loser on foreign exchange markets on Wednesday, tumbling nearly 3 percent against the yen and nearly 1 percent against the euro as Japanese stocks rallied.

Unable to find a toehold of support, the dollar slumped to a one-month low at 106.60 yen before trimming some of its losses in late trading to close at 107.13 yen.

Similarly the euro shed as much as 2.5 percent against the yen, falling to a low of 103.63 yen before recovering to 104.27 yen in late afternoon.

Finding no clear catalyst for the yen's sharp turnaround, dealers mostly linked the Japanese currency's gains to the Nikkei stock index's rally past the 20,000 level to 2-1/2 year highs.

More generally, analysts said the outlook for Japan should improve despite the sluggish statistics released recently and forecasts that growth contracted recently, putting Japan technically into recession.

"It is time to buy the yen again," said Warburg Dillon Read analyst Tomas Jelf.

Meanwhile the dollar's losses against the yen benefited the euro, helping it rise to 97.34 in late trading which is nearly 3-1/2 cents above the record low hit on Monday.

Similarly the Australian dollar came under significant pressure, falling more than 2 percent against the dollar after the nation's trade deficit widened.

"(The dollar's) strength against the yen had probably gotten a bit overdone...and you're starting to see an unwinding of the extremely negative sentiment toward Japan and toward the currency," Jim McCormick, currency strategist at JP Morgan said.

A monthly Reuters survey of mostly London-based fund managers on Tuesday showed that allocation to Tokyo shares in global equity portfolios rose to 15.5 percent from 14.8 percent a month ago as investors cut back slightly on euro zone assets.

The dollar tumbled even though US manufacturers said activity grew for the 13th straight month in February and the pace of expansion was slightly faster than in the prior month.

Meanwhile manufacturing in the 11-nation euro zone also recovered with the Purchasing Managers' Index hitting 57.1 in February after a Y2K-related dip to 55.5 in January. Also prices in the euro zone hit a record at 68.2 in February.

Market analysts said the data helped boost chances the European Central Bank (ECB) will raise interest rates at its semi-weekly meeting this Thursday.

At the moment the majority of analysts expects the ECB to hold rates steady after surprising markets with a quarter-point rate hike about one month ago.

But dealers also said policy makers have been rather unpredictable lately and that they would therefore rule nothing out before Thursday's meeting.

"The PMI data provided support for euro/dollar ahead of the ECB meeting tomorrow. The balance has shifted in favour of an ECB move - there is good fundamental justification for policy tightening," said Neil MacKinnon, senior currency strategist at Merrill Lynch in London.

Meanwhile the US manufacturing data raised expectations that the Federal Reserve will again hike interest rates in March.

The Australian unit dipped as low as 60.39 cents in US trading, a level not seen since October 1998, before popping up off its lows. Dealers cited profit-taking for the mild bounce and dismissed any speculation that Australia's central bank might have stepped in to buy its own currency.

Meanwhile, the British pound staged a comeback after slumping to seven-month lows against the dollar near $1.5750 as US trading got underway.-Reuters