* Dollar hovers near 1-month high 85.94 yen, dlr index slips
* Euro <EUR=> hits 1-month high vs dollar, pulls back
* Australian dollar hits two-year high vs U.S. dollar
(Adds quote, updates prices)
By Anirban Nag
LONDON, Sept 17 (Reuters) - The dollar hovered within
striking distance of a one-month high against the yen on Friday
as the threat of further Japanese intervention kept the yen on
the back foot versus major currencies.
But the dollar fell against other currencies, with the euro
hitting its highest in more than a month and the Australian
dollar soaring to its strongest since mid-2008 as higher share
prices suggested improving demand for risky assets.
"The dollar is being hurt by talk of more quantitative
easing and you have the Bank of Japan, which is leaving its
intervention proceeds unsterilised," said Ian Stannard, senior
currency strategist at BNP Paribas.
"This surge in global liquidity is supporting growth-linked
currencies while the dollar is being supported against the yen
on risks of more intervention by the Japanese."
By 1106 GMT, the dollar was flat at 85.78 yen <JPY=>, not
far from a one-month high of 85.94 struck earlier this week.
Traders said caution about further intervention, since Japan
intervened in the market for the first time in six years on
Wednesday, lent support to the dollar if it fell near 85.00 yen.
They added hedge funds which had been dollar bears were
cutting long yen positions. Dealers also said Japanese
exporters, who close their books for the half-year this month,
may cap the dollar with sales around 86.00 yen. One trader said
there were large sell orders lined up between 86 and 87 yen.
"It is a battle between Japanese exporters and the
authorities and it is crucial for the yen to close around 86 yen
this week," said a strategist at a Japanese bank in London.
He added that a close above that level may enable
authorities to convince exporters that intervention is working
and alleviate some of their hedging pressures.
Japanese markets are closed on Monday and Thursday next week
for public holidays.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For dollar/yen correlations http://link.reuters.com/wyn43p
For PDF on the yen's rise http://r.reuters.com/zuz33p
For graphic on intervention http://link.reuters.com/wym42p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The euro <EUR=> climbed to $1.3159 in European trade, a
five-week high, and to a one-month high versus the Swiss franc
<EURCHF=>, which struggled a day after the Swiss central bank
predicted a big economic slowdown as franc strength hits growth.
The single currency pulled back from gains as peripheral
euro zone bond yield spreads widened, highlighting concerns over
the economy and banking sector in the 16-country bloc.
The euro <EURJPY=R> touched 112.98 yen, its highest since
Aug. 10s. The Australian dollar hit a two-year high of $0.9469
<AUD=D4>, boosted by rising gold prices and risk appetite.
The dollar index <.DXY> plumbed a five-week low of 80.865.
JAPAN TO EXPLAIN INTERVENTION
A 0.8 percent rise in European shares <> suggested
demand for riskier assets despite lingering concerns about the
stability of the global economic recovery.
Analysts said that while U.S. data indicated a sluggish
recovery, it did not suggest a "double dip" recession and
investors were creeping into higher-risk currencies.
"There's a feeling that fears of a double-dip recession are
largely priced," said Carl Hammer, chief currency strategist at
SEB in Stockholm.
"The market is heavily overweight on the bond market, and it
looks like the risk reward still on risk-seeking trades. In that
environment, the dollar is underperforming cyclical currencies,
including the Aussie dollar."
The dollar faced resistance at 85.94 yen, a one-month high
hit on Thursday and its 55-day moving average.
It faces further resistance at 86.30 yen, the bottom of the
resistance cloud on its Ichimoku chart, but traders also cited
stop-loss buy orders above 86.00 and 86.35.
Bank of Japan data on Thursday showed Wednesday's
intervention may have totalled around 1.80 trillion yen ($20.98
billion) [].
Japanese Prime Minister Naoto Kan and U.S. President Barack
Obama are due to meet on Sept. 23 in New York and Japan's
currency market intervention will be on the agenda, the Asahi
newspaper said. []
(Additional reporting by Naomi Tajitsu)
