* Yen rallies despite G7 warning on volatility
* Euro hits 2-year low vs dollar
* Traders say RBA continues Aussie dollar-buying in Europe
(Recasts, adds quotes, updates prices, changes byline,
dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 27 (Reuters) - The U.S. dollar and yen
rallied on Monday as plunging stock markets and fears of global
recession prompted investors to abandon risky trades and seek
shelter in those currencies.
The yen hovered near 13-year peaks against the dollar and
rose to its highest since May 2002 versus the euro despite a
statement of concern by finance officials from the Group of
Seven major industrial nations about excessive volatility in
the Japanese currency.
The G7 said it would continue to monitor markets closely,
and cooperate as appropriate, raising prospects for a
coordinated currency intervention. For more see [].
"This is a continuation of deleveraging and unwinding of
risk that has been happening the past week and this has
benefited the yen and the dollar," said Omer Esiner, senior
market analyst at Ruesch International in Washington.
"The surge in the yen has raised the possibility of a Bank
of Japan intervention. I would imagine the BoJ may come in if
dollar/yen hits below 87 or 85 yen," he added.
The Japanese unit has surged as investors unwind carry
trades, which use the low-yielding yen to buy everything from
higher-yielding currencies to stocks and commodities. Such
trades have collapsed in recent weeks as market players have
been forced to sell assets to raise cash.
The dollar, which on Monday hit a fresh 2-1/2-year high
versus the euro, was also a beneficiary of global deleveraging.
Investors had used dollar-denominated loans to pump up
investments elsewhere. When the crisis escalated over the
summer, borrowers began calling in these loans, resulting in a
scramble for dollars.
In early New York trading, the dollar <JPY=> was down 1.4
percent against the yen at 92.97 yen, pulling back after rising
to about 94.48 yen after the G7 warning. On Friday the U.S.
currency had slid to a 13-year low of 90.95, according to
electronic trading platform EBS.
The euro was down 2.6 percent at 115.79 yen, after hitting
a 6-1/2-year low of 113.62 yen <EURJPY=>, according to EBS.
Against the dollar, the euro dropped more than 2 percent to a
fresh 2-1/2-year low at $1.2335 <EUR=>.
Traders said the G7 warning seemed to have fallen on deaf
ears as investors continued to snap up the Japanese currency
while the Nikkei stock index <> plunged over 6 percent.
"Traders who ignore the G7 words do so at their own risk as
monetary authorities in the industrialized world are clearly
becoming convinced that the FX markets may be the next crisis
hot-spot that will require their attention," said Boris
Schlossberg, director of research at GFT Forex in New York.
Japanese finance minister Shoichi Nakagawa said on Monday
he was watching currencies with "great interest."
The Reserve Bank of Australia continued to intervene in the
currency market, buying Aussie dollars for U.S. dollars in
Europe on Monday, traders said. [].
The RBA confirmed it had intervened on Friday and in Asian
trade earlier in the global session to stabilize the flagging
Australian currency.
The Australian dollar fell to a 6-1/2-year low at
US$0.6020. It was last down 2.4 percent to US$0.6079 <AUD=>.
Against the yen, the Aussie fell 0.7 percent at 56.58 yen
<AUDJPY=R> after sinking to 55.11 yen on Friday -- the lowest
since it was allowed to trade freely in December 1983.
In other currencies, sterling fell more than 3 percent to
$1.5433 <GBP=>. On Friday, it hit a six-year low at around
$1.5265, according to Reuters data, as investors continued to
unwind positions in many markets and boosted cash holdings in
the greenback for investor redemptions.
(Additional reporting by Veronica Brown in London; Editing by
James Dalgleish)
