GLOBAL MARKETS-Dollar holds line as Asia shares dip

                                
 * China says expect more two-way yuan movement
                                
 * Equities slightly lower ahead of earnings season
                                
 * Gold slightly slower but support seen
                                
 By David Fox
                                
 SINGAPORE, Oct 12 (Reuters) - Dealers eyed a line in the
sand for the dollar on Tuesday as the U.S. currency held firm
against most of its Asian counterparts, while China said its
currency reforms did not necessarily mean a yuan appreciation.
                                
 Asian shares were trading lower as indices were seen
consolidating after recent gains amid caution ahead of the
corporate earnings season.
                                
 The dollar was up against all major Asian currencies bar
the Taiwanese dollar <TWD=> and Indian rupee <INR=D4>, although
some traders said short-term profit-taking was likely
responsible and further falls still possible.
                                
 Around 0445 GMT, the Hang Seng <.HSI> was down 0.52 percent
at 23,087.42, Japan's Nikkei <.N225> was down 1.85 percent at
9,411.92, Korea Composite Stock Price Index <.KS11> was down
1.32 percent at 1,864.97 and Singapore's Straits Time Index
<.FTSTI> was down 0.25 percent at 3,155.55 points.
                                
 China's State Administration of Foreign Exchange (SAFE) on
Tuesday urged market players to get used to two-way exchange
rate movements, saying that its policy of currency reform did
not necessarily equate to yuan appreciation. [ID:nTOE69B030]
                                
 But the country's foreign exchange regulator said that
investors were still firm in their belief that the yuan would
rise and that this would help drive capital to China over the
rest of the year.
                                
 The China Securities Journal said in a front-page editorial
that Beijing would have to control the pace of yuan
appreciation and refrain from raising interest rates in order
to ward off inflows of speculative capital.
                                
 "The financial crisis could escalate into a currency
crisis," the newspaper said. "There will be no winner."
                                
 TALK DOWN EXPECTATIONS
                                
 Chinese officials have repeatedly tried to talk down
expectations of a yuan appreciation since freeing the currency
from a 23-month peg to the dollar on June 19. But with the yuan
up nearly two percent against the dollar since late August,
concern is mounting that China could soon face a tide of hot
money.
                                
 (For a Reuters PDF on global currency disputes, click:
http://r.reuters.com/gez77p)
                                
"Currency reform does not equate to yuan appreciation. The
emphasis is more on the improvement of the currency formation
mechanism," SAFE said in a report about China's first-half
balance of payments.
                                
 In Tokyo a day after the dollar fell to a new 15-year low
of 81.37 yen on ECB,  one trader said the market expected a
rate of between 81.50 and 83.00 ahead of a meeting of G20
finance chiefs in South Korea later this month.
                                
 The U.S. Fed's November meeting is the market's focal
point, and minutes from its meeting on Sept. 21, when it said
it stood ready to provide more support for the economy and
expressed concern about low inflation, are due at 1800 GMT.
                                
 The Australian <AUD=D4> dollar fell from near three-decade
highs seen last week to $0.9790, but many traders still see the
currency on track to hit parity and put Tuesday's falls down to
short term profit taking.
                                
 Gold edged lower pressured by a stronger dollar, but
expectations of further monetary easing by the U.S. Federal
Reserve are likely to support the bull run in bullion. Spot
gold <XAU=> inched down to $1,349.10 an ounce in early trading
reversing gains in the previous session.
                                
 At 0445 GMT, Asian stocks were down 1.47 percent with the
MSCI Asia ex-Japan index <.MIAPJ0000PUS> at 454.25.
                                
 China's central bank auctioned 22 billion yuan ($3.3
billion) of one-year bills in its open market operation on
Tuesday at a yield of 2.0929 percent, unchanged from the last
sale and in line with market expectations. [ID:nTST000508]
                                
 Traders had expected the People's Bank of China to keep the
one-year bill yield steady because of its reluctance to send
any market signals that it wants to lift benchmark interest
rates.
                                
 The dollar index <.DXY> was up 0.10 percent at 77.520,
still close to its lowest in nearly nine months.
                                
 (Editing by Jonathan Thatcher)
 (david.fox@thomsonreuters.com; +65 6870 3815; Reuters
Messaging: albert.yoon.reuters.com@reuters.net)
 (For the state of play of Asian stock markets please click on:
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