* Euro/yen falls on speculative sales aimed at hitting stops
* Talk of euro/yen stops starting just above Y107.00
* Dlr/yen bids between Y84.80-Y85.00 but stops below-trader
By Masayuki Kitano
TOKYO, Aug 24 (Reuters) - The euro hit a nine-year low
against the yen on Tuesday as the loss of key technical support
led speculators to short the currency in the hope of forcing
stop-loss sales against both the yen and the dollar.
Falls in Japanese equities helped buoy the yen against the
euro and broadly on crosses. There was also some talk of macro
hedge-fund selling in the euro against the dollar.
"Some stops can be seen in the euro starting from a little
above 107.00 yen. If those are hit, things could get a bit
nasty," said a trader for a major Japanese brokerage house.
The euro fell to as low as 107.21 yen on trading platform
EBS, its lowest since November 2001. After trimming some losses,
the euro last stood at 107.29 yen <EURJPY=R>, down 0.5 percent on
the day.
Against the dollar, the euro hit a six-week low of $1.2620 on
EBS.
After trimming some of its losses, the euro stood at $1.2638
<EUR=>, down 0.2 percent from late U.S. trade on Monday.
Bears were targeting $1.2605, the 50 percent retracement of
the euro's rise from a four-year low of $1.1876 in June to its
August peak of $1.3334. A break here would open the way to at
least $1.2522 and then $1.2479, daily lows from July.
In the past few months, market players had overlooked
problems in Europe, such as the sovereign debt crisis and the
deteriorating health of some banks in the region, due to optimism
that a steep fall in the euro earlier this year would help the
euro zone economy through a boost in exports, traders said.
But market players have shifted their focus back to the euro
zone's troubles after tame economic data and unexpectedly dovish
comments from a top European Central Bank official.
The August euro zone purchasing managers index for
manufacturing, which drove a large part of the economy's return
to growth in the third quarter of last year, saw its pace of
growth slowing, data showed on Monday. []
Late last week, ECB Governing council member Axel Weber said
the central bank should extend its loose monetary stance, stoking
worries about the euro zone economy. []
"Players have plenty of factors to sell the euro on as
underlying problems in the region have not been solved," said
Shuichi Kanehira, head of FX spot trading at Mizuho Corporate
Bank. "The downward trend in the euro is set to stay."
YEN BROADLY HIGHER
The yen was broadly higher and edged back up towards a
15-year peak against the dollar hit earlier in August.
The greenback slipped 0.3 percent against the yen to 84.93
yen <JPY=>, falling back towards a 15-year low of 84.72 yen hit
on EBS earlier this month.
The trader for a major Japanese brokerage house said there
was talk of bids in the dollar at levels near 85.00 yen to 84.80
yen, but added that stop-loss offers were lurking underneath.
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PDF on yen strength: http://r.reuters.com/vaz26n
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The low-yielding yen is a funding currency for carry trades
and can rise in times of market stress or when equities slide and
are seen as denting investor risk appetite.
A trader for a major Japanese bank said that the Nikkei's
drop to a 15-month trough suggests that some Japanese investors
will likely be cautious about taking on additional risk, such as
conducting unhedged overseas investment.
"I don't think they can move ... Their risk tolerance will
not rise," the trader said.
With the yen having hit a nine-year peak against the euro and
nearing a 15-year high against the dollar, traders were cautious
about the potential for some kind of measures by Japanese
authorities to stem the yen's rise.
A drop in the dollar towards 84.00 yen might prompt the BOJ
to take monetary easing steps even before its next monetary
policy meeting in early September, said a trader for a Japanese
bank.
Japanese Prime Minister Naoto Kan and Bank of Japan Governor
Masaaki Shirakawa discussed the yen and had agreed to work
closely in a phone conversation held on Monday, but Kan did not
ask the central bank to ease monetary policy further, and the two
did not touch on currency intervention either. []
Market players say the most likely response from Japanese
authorities may be for the BOJ to increase the size or extend the
duration of its three-month fixed rate fund supply operation.
But traders are sceptical that Japanese authorities would
resort to yen-selling intervention unless the yen's rise picks up
more speed.
(Additional reporting by Wayne Cole and Krishna Kumar in Sydney;
Kaori Kaneko and Rika Otsuka in Tokyo; Editing by Joseph Radford)
