* BofA plans to repay $45 bln of TARP aid
* Aussie dips after data adds little to RBA outlook
* But record gold supports Australian dollar
* Euro higher, but players wary of ECB meeting
By Satomi Noguchi
TOKYO, Dec 3 (Reuters) - The yen and the dollar fell on
Thursday after Bank of America said it would repay $45 billion of
taxpayer bailout funds, boosting investor confidence and trimming
safety bids in those currencies.
Bank of America <BAC.N> is expected to repay its Troubled
Asset Relief Program (TARP) funds over the next few days, with
observers saying this could be the first in a wave of such
payments by major U.S. banks that have yet to give back the
government bailout money. []
Traders said the yen faced another wave of selling on the
BofA move after having been sold the previous day on growing
investor speculation that Japan may take more quantitative easing
steps to get the economy out of deflation and as prospects of
currency intervention loomed large.
The Australian dollar rose supported by record gold prices,
but gains were capped by retail sales for October which matched
expectations for a moderate increase. []
The data added little to the near-term outlook for monetary
policy given that the Reserve Bank of Australia has just lifted
its cash rate and that its next policy meeting is not until
February, prompting some investors to sell the Aussie and book
profits.
Analysts at Barclays Capital said market appetite for risk
continued to recover with several positive developments including
the BofA move.
"If the recovery in risk-correlated assets manages to get
through the U.S. nonfarm payrolls release relatively unscathed,
we think that there is a potential for a squeeze higher in
risk-correlated currencies into year-end," they said in a note to
clients.
The yen <JPY=> extended its fall as far as 87.93 per dollar,
with stop-loss sell orders triggered around 87.50. It lost 0.9
percent in the previous session -- its largest daily loss versus
the greenback in six weeks.
That was a far cry from last week when the yen surged to a
14-year high of 84.82 per dollar on trading platform EBS.
It has lost ground steadily since then and traders now expect
support for the yen at the 88 per dollar mark.
"Suddenly the market does not want to touch yen," said David
Watt, senior currency strategist at RBC Capital.
"As the focus in of the rest of the world continues to be on
potential exit strategies, headlines about a stimulus package,
liquidity provisions from the Bank of Japan and a wall of words
from concerned Japanese officials proliferate."
Market sources who talk to hedge funds said the Bank of
Japan's decision to pump more money into the banking system has
encouraged those funds to use the yen as a funding currency
again, pushing cross/yen higher.
Talk of intervention got a boost after Japanese Prime
Minister Yukio Hatoyama said on Wednesday the yen's recent rise
could not be left alone. [].
Japan's Chief Cabinet Secretary Hirofumi Hirano later
downplayed Hatoyama's remarks, but that did not deter investors
from selling the yen.
The Bank of Japan signalled on Wednesday it was open to more
measures to support the economy after its emergency meeting the
previous day offered short-term funding and disappointed markets.
[] That has fanned expectations that it may take more
quantitative easing steps.
In general, quantitative easing undermines a currency's value
because it expands money supply to levels that could potentially
lead to higher inflation.
ECB AWAITED
The euro <EUR=> rose 0.3 percent to $1.5094 ahead of a key
European Central Bank meeting later in the session.
The single currency extended gains on the yen <EURJPY=R>,
rising to as high as 132.70 yen on EBS, before trading at 132.50
yen, up 0.8 percent from late New York trade.
The ECB is expected to keep rates unchanged but may signal
its first step towards unwinding some of the emergency measures
taken last year to prop up the economy. For scenarios story, see
[].
Still, with recent debt woes in Dubai in the background,
there were expectations the ECB could delay plans to withdraw
some of its liquidity operations. Any such move could weigh on
the euro.
The Aussie <AUD=D4> was up 0.4 percent at $0.9292, but off
earlier highs at $0.9311. It rose 0.9 percent to 81.55 yen
<AUDJPY=R>.
(Additional reporting By Anirban Nag; Editing by Chris
Gallagher)
((satomi.noguchi@thomsonreuters.com; +81-3-6441-1875; Reuters
Messaging; satomi.noguchi.reuters.com@reuters.net))
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