* Dollar/swiss steadies above previous day's 8-mth low
* Market looking ahead to Japan's Sunday elections
By Charlotte Cooper
TOKYO, Aug 28 (Reuters) - The dollar regained some ground
against a basket of currencies on Friday after falling the day
before, while higher yielding and commodity-related currencies
edged higher against the yen.
The U.S. dollar was hurt by heavy selling late in New York on
Thursday, dropping 0.8 percent against a basket of currencies
<.DXY> in just one hour. It was particularly hard hit against the
Swiss franc <CHF=> amid talk hedge funds had unwound long dollar
positions.
It inched up against the yen in Asia, however, which traders
said was helped by buying from Japanese and European banks, after
hitting its lowest in a month the previous day.
The market was also readying for Japan's general election on
Sunday, and traders said the market was broadly factoring in a
win for the main opposition Democratic Party. []
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"If anything there's been a bit of squaring up (before the
vote)," one trader at a European bank in Hong Kong said.
"It feels like there may have been some short euro/yen and
short dollar/yen positions out there that got squared up this
morning."
The dollar rose 0.3 percent to 93.75 yen <JPY=> after hitting
a one-month low of 93.20 yen on Thursday.
The dollar index, which measures the dollar's value against a
basket of currencies, rose 0.1 percent to 78.089.
Traders said the drop on Thursday seemed to be a result of
system trading sell orders and appeared to have started with stop
loss sell orders triggered in dollar/Swiss near 1.0660 francs.
The dollar stood at 1.0581 francs <CHF=>, dipping 0.1% from
late New York levels. At one point it had spun down to an
eight-month low of 1.0529 in the sell-off.
The euro inched up 0.2 percent to $1.4366 <EUR=>, below the
previous day's three-week high at $1.4407 on trading platform
EBS.
The Australian dollar rose 0.1 percent to $0.8403 <AUD=D4>
after a 1.5 percent jump on Thursday, with speculation growing
that the Reserve Bank of Australia could raise its cash rate as
early as October. A trader at a European bank in Tokyo said
investors had also closed short Aussie positions, supporting it.
"The data from Australia has been pretty strong, suggesting
the economy has a fair bit of momentum," said John Kyriakopoulos,
currency strategist at National Australia Bank.
"Interest rate markets are now bringing forward the prospects
of a rate hike to as early as October and that is helping the
Aussie."
Data out of Australia on Thursday showed a surprising jump in
business investment last quarter, highlighting upward risks to
growth.
The Reserve Bank of Australia meets early next week to decide
on rates, and while markets expect it to keep rates unchanged at
a record low of 3 percent, investors are moving to factor in a
good chance of a rate move as early as October. <RBAWATCH>
The Aussie rose 0.5 percent to 78.78 yen <AUDJPY=R>.
The New Zealand dollar <NZD=D4> edged up 0.1 percent to
$0.6881 <NZD=D4>, just short of a recent 11-month high at
$0.6898. There was talk of stop loss buy orders above $0.6900.
Commodity-related and higher yielding currencies have been at
the mercy of moves in share markets recently and have reacted
particularly to moves in volatile Shanghai shares.
Market players said short-term traders still seemed to be
taking cues from fluctuations in Shanghai shares, which were last
down 2.9 percent <>. The yen tends to gain support when
falls in Shanghai shares deepen, although traders said the impact
seemed to be fading compared to before.
"The 'Shanghai up or down 2 percent' trade is wearing a bit
thin," the trader in Hong Kong said.
(Additional reporting by Masayuki Kitano and Kaori Kaneko in
Tokyo, and Anirban Nag in Sydney; Editing by Edwina Gibbs)
