* Dollar gains 0.8 percent vs yen on short-covering
* Euro retreats after early push above $1.3800
* BOJ, RBA, IMF meet this week, plenty of event risk
By Charlotte Cooper
TOKYO, Oct 4 (Reuters) - The dollar surged higher on Monday
in a short-covering rally against the yen, which retreated
against other currencies as investors unwound some long yen
positions ahead of a Bank of Japan policy meeting this week.
Few see surprises from the BOJ meet, which ends on Tuesday,
with expectations that policy makers will extend a cheap
fund-supply tool to help shore up the economy. []
"The market expects an expansion of market operations. Few
Japanese investors expect the BOJ to increase buying of
government bonds so if the BOJ does that, that would be a big
surprise and would drive the yen lower," said Etsuko Yamashita,
chief economist at Sumitomo Mitsui Banking Corp.
Some traders said the dollar had been helped by a bit of
speculation in the market that any step might be followed by
yen-selling intervention just when players would not be expecting
it ahead of an IMF meeting.
Financial leaders gather for the International Monetary Fund
meeting this week and the concept of countries keeping their
currencies weak for export-gain is likely to be a hot topic.
[]
"There has been talk that intervention is not effective
unless it is accompanied by monetary easing. So some people are
hoping that there will be intervention tomorrow," said a trader
at a Japanese trading house.
Dollar short positions have been building as expectations
have risen that the Federal Reserve is close to resuming
quantitative easing to give a sluggish U.S. economy a boost.
"It's still a dollar-negative situation but short-term
probably the market has priced a lot in," said Masafumi Yamamoto,
chief FX strategist Japan at Barclays Capital.
Traders said the dollar had triggered stops at 83.40 yen
<JPY=> and up to 83.60/70 yen, sending it as high as 83.88 yen.
It hit a 15-year low of 82.87 yen on Sept. 15, just before
Japan intervened for the first time in six years to curb yen
strength, and the market has been cautious about selling the
greenback too aggressively against the yen ever since.
Cabinet Secretary Yoshito Sengoku cautioned in a weekend
interview with Reuters that current yen moves were too
speculative. []
But traders reported dollar offers were also lined up above
84.00 yen, capping its gains. It rose 0.4 percent to 83.56 yen.
Currency speculators' bets against the dollar swelled to $22
billion in the week to Sept. 28, the largest value since at least
mid-2008, data from the Commodity Futures Trading Commission
showed. []
Long positions in the euro jumped to 35,330 contracts from
5,097 in the previous week, while long positions in the yen rose
to 28,666 contracts from 23,100.
The euro, which hit its highest in more than four months at
115.29 yen <EURJPY=R> also took out stops. It rose 0.2 percent on
the day to 115.05 yen.
The euro had a quick run above $1.3800 <EUR=> to its
strongest levels since mid-March in very early Asian trade but
then retreated as sell orders from Middle Eastern banks kicked
in, one trader at a Canadian bank said.
It fell 0.2 percent to $1.3760, but was still holding on to
most of Friday's gains, when it rose 1 percent.
"Despite massive problems in Europe, it still seems to be the
only alternative to the U.S. when it comes to diversification of
FX reserves," said Robert Ryan, FX strategist at BNP Paribas in
Singapore.
The euro's next target is seen at $1.3895, the 61.8%
retracement of its fall from above $1.51 late last year to the
June low of $1.1876.
The dollar index edged up 0.2 percent to 78.226, after
hitting an eight-month low on Friday of 78.029 <=USD> <.DXY>.
Data on Friday showed U.S. manufacturing growth slowed last
month and inflation remained subdued in August, leaving the door
open for the Fed to launch a fresh round of easing.
Two Fed policymakers also said more action would likely be
needed unless the outlook improved, and investors will be
watching jobs data this Friday for more clues. []
Australia has a partial holiday on Monday. The Australian
dollar eased 0.3 percent to $0.9685 but was still close to a
two-year high of $0.9751 <AUD=D4> set on Friday.
The central bank holds a rate review on Tuesday and is seen
as more likely than not to raise the cash rate by 25 basis points
to 4.75 percent, although the decision is not seen as a done
deal. If it does, the move would be the first since May.
[]
(Additional reporting by Masayuki Kitano and Hideyuki Sano, and
Reuters FX analyst Krishna Kumar in Sydney; Editing by Joseph
Radford)
