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IMM currency futures

mostly down

CHICAGO: IMM currency futures finished a session of choppy trading mostly lower.

Small shortcovering near the close helped futures cut losses they had incurred during the final hour after the U.S. Treasury department said the July U.S. budget deficit was $13.58 billion, traders said.

The budget shortfall was well below the average forecast for a gap of nearly $26 billion.

"It (currency pullback) coincided very, very nicely with the lower-than-expected budget deficit for July," said Bob Lynch, senior currency analyst, MMS International.

The smaller shortfall, which Lynch said appeared to stem lower outlays than anticipated, "bodes well" for the overall U.S. budget deficit this year.

He also said the yen earlier had popped higher, following overnight gains, after Standard & Poor's Corp said it may cut the ratings of five Japanese banks due to the length and severity of the problems facing the Japanese banking sector.

The International Monetary Fund, in an annual report, also voiced concern about Japan's banking sector and raised questions about the effectiveness of Tokyo's approach to resolving the crisis.

That news reignited talk that Japanese institutions may repatriate yen if banks are faced with liquidity problems, traders said.

"It's not that it would be good for yen...but one of the biggest concerns is that there would be (yen) repatriation," Lynch said of the talk of Japanese banking sector problems.

But the move up in yen lacked enough power, and values soon gave back part of gains in thin trade, traders said.

Focus stayed on Tuesday's Federal Open Market Committee (FOMC) meeting, Wednesday's German securities repurchase tender and Thursday's Bundesbank council meeting.

Few traders said they looked for the Fed to ease rates again yet, although several expect the Bundesbank to let the German repo rate slip but keep official rates steady.

At the end of pit trading September yen rose $0.000063 to $0.010361, marks eased $0.0008 to $0.6779, Swiss francs declined $0.0019 to $0.8178, Sterling fell $0.0040 to $1.5392, Canadian dollar slipped $0.0003 to $0.7355, and the Australian dollar rose $0.0020 to $0.7370.-Reuter