* Aussie holds close to 7-mth highs after RBA holds rates
* Profit-taking on euro, others vs dollar, yen
* Some caution ahead U.S. banks' stress tests
* Tokyo markets on holiday, trade lighter than usual
By Charlotte Cooper
TOKYO, May 5 (Reuters) - The Australian dollar held near
seven-month highs on the U.S. dollar and yen after its central
bank kept rates steady, while the euro and sterling saw
profit-taking on investor caution ahead of U.S. bank stress
test results.
The Reserve Bank of Australia on Tuesday kept its benchmark
cash rate on hold at a record low of 3.0 percent, helping buoy
the Aussie after investors pocketed profits on its recent gains
and wariness of a possible surprise cut also took the edge of
it.
News that about 10 U.S. banks being stress tested were
likely to need more capital also injected a note of caution
into a market made less liquid than usual by a three-day
holiday in Tokyo.
U.S. regulators have deemed about 10 of 19 banks will need
more capital, according to a source familiar with the talks.
Results of the tests are expected on Thursday. []
"We did see a big move overnight so the market is thinking
people are quite long so we'll take away some profits -- so
that's one factor driving the adjustment," said Sharada
Selvanathan, currency strategist at BNP Paribas in Hong Kong.
But analysts said some were concerned about the results of
the stress tests and how banks would get capital.
"The market is very split. We do see a lot of positive
sentiment but those who are bears are using the big moves to
unwind positions and to sell at these levels," Selvanathan
said.
The Australian dollar hit a seven-month high of $0.7427 in
early trade. Profit-taking took it down below $0.7400 but after
the RBA decision it recovered back to $0.7407 <AUD=D4>.
Against the yen it was flat at 73.16 yen <AUDJPY=R>,
although down from Monday's seven-month peak of 73.57 yen.
Analysts said the central bank looked like it was now
taking a wait-and-see approach to monetary policy.
[]
"While risks still lie with further rate cuts, the period
of big aggressive moves has come to an end, so it will now be
smaller moves, dependent on the data trends," said Michael
Blythe, chief economist at Commonwealth Bank of Australia.
PRECAUTION PROFIT-TAKING
The dollar was steady at 98.83 yen <JPY=>, down from a
two-week high at 99.57 on Monday and on a basket of currencies
it rose 0.3 percent <.DXY>.
The euro slipped 0.3 percent $1.3383 <EUR=> after earlier
brushing its highest in a month at $1.3439 on trading platform
EBS as it tried to extend a 1 percent jump on Monday.
It hit a three-week high of 132.87 yen on Monday but was
off 0.2 percent on the day on Tuesday to 132.23 yen <EURJPY=R>.
Commodity-related currencies and sterling have all gained
in the past two to three months against the dollar and yen as
optimism spreads that the deepest economic slump in decades may
have bottomed out.
That improving sentiment has fuelled gains in stock
markets, with better news on manufacturing in Europe, China and
India and positive signs on U.S. home sales and construction on
Monday stoking those hopes. []
Traders and analysts in Asia were cautious however that the
gains were becoming overstretched and the round of
profit-taking in Asia showed underlying confidence remained
fickle.
"It's a been a long rally. It just looks like it's starting
to get a bit exhausted," said Mitul Kotecha, global head of FX
strategy at Calyon in Hong Kong.
The pound had looked set for a test of a potential
four-month high against the dollar but retreated 0.2 percent
from late U.S. trading levels to $1.5017 <GBP=D4> and shed 0.2
percent on the yen <GBPJPY=R>.
(Additional report by Anirban Nag in SYDNEY; Editing by Jan
Dahinten)
