* USD firm, but gains capped by falling US bond yields
* Yen broadly up, sliding Tokyo shares seen as factor
* Focus now on U.S. Sept non-farm payrolls
* Euro subdued after sell-off, gains seen capped at $1.4550
By Satomi Noguchi
TOKYO, Oct 2 (Reuters) - The U.S. dollar held firm against
most major currencies on Friday with investors sitting tight
ahead of a U.S. payrolls report for September due later in the
day.
The dollar rose earlier as investors cut short positions and
booked profits in higher-yielding currencies, but gains were
capped as those moves receded, and by falling U.S. bond yields.
The yield on benchmark 10-year Treasuries notes fell to 3.15
percent, its lowest in more than four months, on a slide in
regional stocks and speculation that the September jobs report
might come in weaker than previously expected. []
Some traders said falling U.S. Treasury yields may contribute
to a further fall in dollar/yen due to the shrinking yield gap in
longer-term debt between the United States and Japan.
"Our past experience suggests this will likely make
dollar/yen top-heavy as people look at longer bond yields for
guidance on dollar/yen direction," said Kosuke Hanao, head of
Treasury products sales for HSBC in Tokyo.
The yen rose broadly as Tokyo's benchmark share average
<> fell further below the psychologically key 10,000 mark,
prompting some traders to think Japanese retail investors may
become hesitant to take risks and invest overseas.
The U.S. dollar dipped 0.2 percent to 89.40 yen <JPY=>,
within sight of an eight-month low of 88.23 yen struck on EBS on
Monday. Some attributed the yen's rise against the dollar to a
domestic media report that Japan's finance minister reiterated he
will not discuss the yen's recent rise versus the greenback at a
weekend meeting of the Group of Seven finance ministers and
central banks in Istanbul. []
The euro fell as low as 129.65 yen, a lowest since mid-July,
before recovering to 130.05 yen <EURJPY=R>, down 0.2 percent.
AWAITING US DATA
The median forecast is for a drop of 180,000 in U.S. payrolls
in September, slowing from the 216,000 that were shed in August,
though Goldman Sachs caused a stir by revising its forecast to
show a much bigger drop. [].
Earlier this week, the ADP report for private sector
employment did not bode well for the jobs report, so investors
will be wary of going long on riskier assets and high-yielding
currencies.
On Thursday, investors also chose to focus on the
lower-than-expected manufacturing number from the Institute for
Supply Management and a rise in weekly jobless claims. Those
numbers managed to overshadow a sharp 1.3 percent jump in
personal spending. []
The U.S. dollar often gains when investors appear uncertain
about the likely pace of the economic rebound and long positions
in riskier assets like stocks and higher-yielding currencies get
unwound.
The euro edged down 0.1 percent to $1.4536 <EUR=>. It fell as
low as $1.4502 earlier, a three-week low, extending the previous
day's slide made when the European Union's Economic and Monetary
Affairs Commissioner Joaquin Almunia said the G7 meeting this
weekend would discuss the single currency's recent gains.
European Central Bank President Jean-Claude Trichet has lent
support to that view, saying excess foreign exchange moves had an
adverse impact. On Monday, he backed the argument for a strong
U.S. currency.
Finance officials worldwide had expressed their discomfort
with their respective currencies' strength against the dollar,
which tumbled more than 6 percent against a currency basket in
the third quarter.
The dollar index <=USD>, a gauge for the greenback's
performance against six other major currencies, held the previous
day's gains above the 77 mark to trade at 77.187, flat on the
day.
"The dollar index did manage to retake 77, and one has to
presume that the short-term risks are to the upside, even though
the medium-term risks are to further U.S. dollar weakness," said
David Watt, senior currency strategist at RBC Capital.
Federal Reserve Chairman Ben Bernanke said on Thursday the
dollar would weaken if it loses its status as the international
reserve currency. He added that he doesn't see this as a
near-term risk, so long as the United States takes steps to
manage its fiscal problems. []
Another dollar-positive comment came from U.S. Treasury
Secretary Timothy Geithner, saying that a strong dollar was very
important to the U.S. []
The Australian dollar was off 14-month peaks and traded at
$0.8693 <AUD=D4>, having lost ground after disappointing U.S.
data prompted a round of profit-taking on risk trades.
(Additional reporting by Anirban Nag in Sydney; Editing by
Joseph Radford)
