* Yen holds broad gains on short covering, quarter-end flows
* Dollar index seen on the defensive on recovery doubts
* Yen crosses slide as regional stocks extend falls
By Rika Otsuka
TOKYO, June 25 (Reuters) - The yen rose broadly and stayed
near a 1-month high against the dollar on Friday on short
covering, and as falls in regional share markets prompted
traders to further sell risky currencies such as the Australian
dollar.
The euro and Australian dollar fell against the greenback on
investor doubts about the strength of a global recovery, and
were also dragged lower by their weakness against the yen.
The yen and dollar were also supported by concerns that
leaders of the Group of Eight and Group of 20 rich and
developing nations may not produce a strong and unified response
to help the economic recovery at their weekend meetings in
Canada.
"It's all about cutting risky positions with falls in yen
crosses leading the market," said a trader for a Japanese trust
bank.
Traders said quarter-end inflows were lending support to the
yen <JPY=>, with Japanese exporters selling the euro.
Dollar/yen options barriers at 89 yen and below are likely
to check gains for the Japanese currency in the near-term but
some traders said momentum indicated the yen would eventually
test 87.95 yen, a high hit on May 6.
Traders said many investors who had gone short on the yen
this month on speculation that Japan's new Prime Minister Naoto
Kan will support a weaker yen were unwinding those positions.
Also helping the yen was the Federal Reserve's dovish
statement this week, which contributed to a further fall in
already low Treasury yields.
The dollar stood at 89.52 yen <JPY=>, down 0.1 percent from
late U.S trade on Thursday, when it lost about 0.4 percent and
hit a 1-month low of 89.22 yen on trading platform EBS.
Japanese exporters are expected to move quickly to sell the
dollar early on Monday if dollar/yen finishes Friday trade below
90.00 yen as they have to convert overseas earnings towards the
end of the month, traders said.
The dollar index was flat on the day at 85.77 <.DXY>, with
traders expecting it to test support at 85.09, this week's low,
in the near term as softer Treasury yields keep it on the
defensive.
U.S. economic reports on weekly initial jobless claims and
durable goods orders for May on Thursday were relatively firm
yet could not lighten the market gloom. []
The euro fell 0.1 percent to $1.2320 <EUR=>, giving up some
gains made on Thursday when quarter-end buying by portfolio
managers helped the currency despite worries about the euro
zone's debt and financial sector.
Gains in the euro were likely to be checked by losses in
stock markets, with the currency remaining highly correlated
with the S&P 500 index <.SPX> at a solid 63 percent.
S&P 500 stock futures <SPc1> inched up 0.3 percent on Friday
in Asia, while Tokyo's Nikkei stock average <> dropped 2
percent, prompting investors to feel more nervous about taking
on risk.
Against the Japanese currency, the euro fell 0.2 percent to
110.27 yen <EURJPY=R> after falling as low as 110.04 yen on EBS.
The Australian dollar slid 0.5 percent to $0.8625 <AUD=D4>,
having lost 0.9 percent on Thursday as investors booked profits
in high-yielding currencies after a rally this week.
Uncertainty over Australia's mining tax after remarks from
the country's new Prime Minister Julia Gillard was also seen as
a negative for the currency, traders said.
Gillard said she was open to genuine negotiations with
global miners over the government's planned mining-profits tax,
but declined comment on the 40-percent headline
rate.[]
Some market players hope a change of leadership would lead
to a softening in policy on the 40-percent proposed mining tax.
China's central bank set the yuan's daily mid-point
<CNY=SAEC> at 6.7896 par dollar on Friday, the highest level
since the July 2005 revaluation. It meant China has allowed its
reference rate to rise 0.6 percent this week since it announced
a change in the yuan exchange regime at the weekend.
[]
The euro and the Australian initially edged up on the news
then quickly gave back gains.
(Additional reporting by Anirban Nag in Sydney and Satomi
Noguchi in Tokyo; Editing by Edwina Gibbs)
