* Bank of America deemed to need $34 bln more
capital-source
* Yen jumps sharply vs Aussie, euro, as risk taken off
* Aussie, euro and others were already under pressure
* Traders say correction was due after their steep gains
By Charlotte Cooper
TOKYO, May 6 (Reuters) - The yen climbed steeply on
Wednesday, jumping more than 1 percent versus the Aussie and
euro, after a source said Bank of America <BAC.N> was deemed to
need more capital, prompting investors to lighten riskier
positions.
The market was already pocketing profits from bets this
week against the yen and the dollar when a source familiar with
the U.S. bank stress test results said Bank of America was
believed to need an additional $34 billion in capital.
[]
The news deepened losses in the euro, Australian and New
Zealand dollars and also prompted the dollar to fall against
the yen, which has been used to fund positions in
commodity-related currencies in recent weeks when investor
confidence had picked up.
"It's really caught the market in a mood of cautiousness
and that's exacerbated the pullback in some of the riskier
currencies," said Mitul Kotecha, global head of FX strategy at
Calyon in Hong Kong.
Although Bank of America has been at the top of the list of
banks believed to need more capital in the stress test results
expected to be published late on Thursday, the $34 billion is
higher than published reports had speculated the largest bank
might need.
Stocks fell on the news with S&P futures <SPc1> falling 1
percent, pointing to a weak Wall Street. []
"It definitely is more. That's what's hit now -- it's the
sheer size of the additional capital that's being speculated
on," Kotecha said.
The euro <EUR=> fell 0.5 percent on the day to $1.3261
<EUR=> after touching its highest in a month at $1.3439 on
trading platform EBS on Tuesday.
A trader at a European bank said if it fell through
$1.3200-1.3180 it could see more stop-loss sales.
It shed 1.3 percent to 130.14 yen <EURJPY=R>, well below a
three-week high of 132.87 yen set on Monday.
IN NEED OF A CORRECTION
Traders said the market had been overextended in its long
positions on currencies such as the euro and Australian
dollars, hence the extent of the pullback. Profit-taking was
broad-based, with hedge funds reducing positions.
Trading was also a little thin with Japan shut until
Thursday for Golden Week holidays.
The dollar fell 0.7 percent to 98.13 yen <JPY=> although
its index on a basket of six currencies <.DXY> strengthened 0.2
percent to 84.307, up from a five-week low on Tuesday.
"Overall looking at the euro and the dollar index we're in
a reasonable-sized range so in the medium term this is just a
correction rather than a big long-term move," the trader said.
Commodity-linked currencies such as the Australian <AUD=D4>
and New Zealand dollars <NZD=D4> have benefited as investor
confidence has grown that the worst of the global recession may
be over.
The Aussie hit seven-month highs this week and both
currencies were already under profit-taking pressure before the
Bank of America news, which also overshadowed data showing a
surge in Australian retail sales in March. [].
The Aussie shed 0.7 percent on the day to $0.7361 and 1.4
percent to 72.32 yen <AUDJPY=R>. The kiwi fell 1 percent
against the yen and half a percent on the dollar.
In other news, San Francisco Fed President Janet Yellen
said the U.S. recession could end in the second half of the
year but was not likely to give way to a robust rebound.
[ID:nN05517211
The market is also wary ahead of Thursday's policy
announcements by the European Central Bank (ECB) and Bank of
England (BoE).
The ECB is expected to cut its main interest rate to a
record low of 1 percent, while the BoE is seen holding rates at
0.5 percent, also a record low.
But, more importantly, markets want to see if the ECB
suggests it will keep cutting rates or adopt quantitative
easing measures, following the Fed's footsteps, to stimulate
growth.
(Additional reporting by Anirban Nag in Sydney; Editing by
Neil Fullick)
