* Euro tumbles 3 pct vs yen, hits 13-mth low vs dollar
* Lack of common European bank plan hits confidence
* Yen soars across board, Aussie/yen sinks 5 pct
* Asia stocks shed 4 pct, Europe seen tracking drop
By Chikako Mogi
TOKYO, Oct 6 (Reuters) - The euro slid to a 2-1/2-year low
against the yen on Monday as investors shifted their focus to
banking problems in Europe after leaders of Europe's four biggest
economies decided against a coordinated bank bailout.
Traders said the failure of European leaders to come up with
a unified plan dealt a big blow to investor confidence and
stirred more worries about the troubles plaguing the global
financial system, prompting heavy selling of risky positions in
carry trades and stocks.
The Australian dollar plunged more than 5 percent against the
yen at one point to a four-year low as investors were forced to
dump long-standing carry trades favouring higher-yielding
currencies.
Japanese investors, including institutional ones such as life
insurers and commercial banks, were seen repatriating some of
their hefty overseas assets as they sought the shelter of moving
money back home, traders said. Japanese retail margin traders
were also seen as big forced sellers of the Aussie.
Market players said many investors around the world are
spooked by the damage to the financial system and only want to
deal with banks considered the very safest in the deepening
crisis that has claimed institutions on both sides of the
Atlantic.
Stock markets around Asia tumbled between 4-5 percent.
[]
"It's just people taking risk off the table," said one trader
at a European bank in Tokyo. "All unwinding and de-leveraging."
German and French officials denied on Sunday that they were
set to endorse a common fund to bail out European banks. The
comments came after European leaders issued a joint statement
after a summit in Paris that made no mention of a fund.
[]
But the troubles in Europe were made clear after the German
government and banks were forced to come up with a new rescue
package for mortgage lender Hypo Real Estate over the weekend.
Germany and Denmark also issued a guarantee on bank deposits,
while Iceland said a bank stability plan was in the works.
"Market concerns are running high over Europe's financial
sector as credit jitters spread, and over how each country will
respond to the problem," said Masaki Fukui, a senior market
economist at Mizuho Corporate Bank.
"It looks unlikely that Europe as a region will take uniform
action anytime soon, and that will likely put more pressure on
the European Central Bank to act," he said, adding that the
intensifying credit crunch will further hurt the euro zone
economy and undermine the single currency.
The euro shed 1.1 percent at $1.3617 <EUR=> after plumbing a
13-month trough of $1.3595 on trading platform EBS. The single
currency slid 3 percent to 140.46 yen <EURJPY=R> and struck a
2-1/2-year low of 139.96 yen.
"The euro is under selling pressure on disappointment and a
bleak outlook for Europe's banking sector after European
officials failed to come up with something similar following U.S.
approval of the bailout plan," said a senior dealer at a Japanese
trust bank.
The U.S. House of Representatives voted 263-171 to pass a
$700 billion rescue package for the U.S. financial sector on
Friday, which was promptly signed by President George W. Bush.
But relief over the measure, which will allow the U.S.
Treasury to buy illiquid mortgage assets from banks to try and
get credit flowing between banks again, proved short-lived.
Investors also remained wary of the U.S. banking sector,
keeping the dollar's upside limited and leaving the yen by
default to benefit as investors reduce risk exposure, they said.
The dollar index, which tracks the dollar's value against a
basket of six currencies, rose to a 13-month high of 81.170
<.DXY>. But gains were limited as the dollar dropped 2 percent to
103.19 yen <JPY=> and hit a nearly five-month low of 102.85 yen.
Japanese investors were big sellers of the euro and
Australian dollar and rushing to buy back the yen.
The Aussie tumbled 5.4 percent to 77.09 yen <AUDJPY=R> and
struck a low of 76.60 yen before the Reserve Bank of Australia is
expected to cut rates by 50 basis points on Tuesday to 6.5
percent.
Talk continued to swirl that major central banks could cut
interest rates in a coordinated move to bolster confidence and
help thaw the freeze in money markets that is threatening a
deeper global economic downturn.
"A potential RBA rate cut is of course a blow for the Aussie,
but the current sell-off goes beyond that," said Takahide
Nagasaki, chief FX strategist at Daiwa Securities SMBC. "The
Nikkei's tumble generates demand for yen as investors reduce
risky assets."
(Additional reporting by Eric Burroughs, Satomi Noguchi and
Shinichi Saoshiro; editing by Sophie Hardach)
