* Euro/yen down on profit-taking from overnight rally
* Drop in Euro/yen also drags dollar/yen lower
* Yen's recent rise may pause near-term if stocks keep gains
* Market still wary of global econ downturn, credit crisis
By Chikako Mogi
TOKYO, Nov 25 (Reuters) - The yen edged up against the euro
on Tuesday after falling around 5 percent the previous day on a
rally in U.S. stocks as the U.S. government agreed to inject $20
billion of new capital to rescue troubled Citigroup <C.N>.
Asian stocks tracked U.S. shares higher in a sign of warming
risk appetite as investors welcomed the U.S. government's $300
billion-plus lifeline to prevent the collapse of the world's
largest banking group. [] []
While investors remain cautious due to persistent worries
about credit crisis and global economic downturn, a recovery in
stock markets could spur some risk taking, causing the yen to
pause from recent gains in the near term, traders said.
Japanese financial markets were closed on Monday for a
national holiday.
The fall in the euro against the yen was led by profit taking
and Asian players adjusting positions after the single currency
rose nearly seven yen on Monday, with thin volume exaggerating
price moves, traders said.
"Although there were some speculative players who also sold
the euro against the yen, the market looks more confident about
the stock rally this time, holding the yen from rising higher
again," said a senior trader at a Japanese bank.
"It is possible that those speculators may have to buy the
euro back later in the day," the trader added.
The euro was down 1.6 percent against the yen at 123.92 yen
<EURJPY=>. On Monday, the single currency rose from a low around
119.60 yen to a high above 126 yen.
The euro's drop also dragged the dollar lower against the
yen, but traders said once selling of the euro against the yen
subsides, it was likely to help the dollar recover losses against
the Japanese currency.
The dollar was down 1 percent at 96.31 yen <JPY=>, but above
Monday's low near 95 yen.
The euro eased 0.7 percent to $1.2863 <EUR=>, off a two-week
high of $1.2955 hit on Monday.
The Nikkei stock average <> rose 5.2 percent.
Traders said they were monitoring the stock market for signs
of fading risk aversion.
RISK AVERSION REMAINS
Hideki Amikura, deputy general manager of the forex section
at Nomura Trust Bank, said despite a recovery in stocks, the yen
and dollar were likely to keep benefiting from risk aversion.
"The market's direction hasn't changed. Investors wanted to
focus on positive factors, but the yen is being bought back,
suggesting investors' long-term view on risk remains intact,"
Amikura said.
"It will take a long time to bring the financial system back
to health, as it happened in Japan, and it's hard to believe
market sentiment will turn around quickly," he said.
In addition to the U.S. bank rescue, British Finance Minister
Alistair Darling unveiled a broad stimulus plan to jump-start the
economy, helping to bolster U.K. stocks and sterling. []
Data on Monday reinforced worries over a global economic
slowdown. A report showed sales of U.S. existing homes fell 3.1
percent in October to a 4.98 million-unit annual rate.
[]
A below-consensus reading for the German business climate
index underlined weakness in the region's largest economy,
keeping expectations high for cuts in euro-zone interest rates.
[]
If stock markets kept gains, the opposite of what has been
happening when stocks were falling is likely to occur in the
currency market, namely, buying back currencies against the yen,
such as the euro, and buying back emerging currencies, a senior
dealer at a Japanese trust bank said.
"But such buying is likely to be cautious as the market
remains skeptical about whether the retreat in risk aversion will
last for long, keeping currency prices in ranges," he said.
(Additional reporting by Satomi Noguchi; Editing by Hugh Lawson)
