* Yen slides as share price rebound spurs short-covering
* Tokyo Nikkei rebounds from 26-yr low, European stocks up
* RBA intervenes to prop up Aussie for third day
(Changes byline, dateline; previous LONDON, adds quotes,
update prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 28 (Reuters) - The yen fell across the board
while the dollar retreated against the euro on Tuesday, as a
recovery in global stock markets prompted investors to lock in
recent steep gains in those two currencies.
The moves were technical, as there has been no major
catalyst to change the market's perspective on risk-taking,
even as ongoing unwinding of leveraged trades away from risky
assets remained entrenched.
European shares rose 3.8 percent. Those gains followed a
6.4 percent jump in Japan's Nikkei share average from a 26-year
low, boosting the euro and Australian dollar, two of the
currencies most battered versus the yen.
But the respite for stock markets and the yen's fall were
seen as a temporary pause from recent price action as the
spectre of a prolonged global recession was expected to keep
investors in risk-averse mode.
"I think this is just a technical rebound. The recovery in
equity prices has hurt the yen and weighed on the dollar
against the euro," said Matthew Strauss, senior currency
strategist, at RBC Capital Markets in Toronto.
"But nothing has really changed. A 24-hour move is not
enough to confirm a change in sentiment," he added.
In early New York trading, the dollar jumped 2.7 percent
from late U.S. trade to 95.28 yen <JPY=>, moving away from a
13-year low just above 90 yen struck on Friday.
The euro was up 3.0 percent at 119.28 yen, having earlier
topped 120 yen. The euro struck a 6-1/2 year low of 113.79 yen
on Friday, according to electronic trading platform EBS.
Traders said the yen's fall has eased the risk of
intervention by the Bank of Japan to weaken its currency for
trade purposes, but remained a risk given the surge in
volatility.
The implied volatility <JPY1MO=> of the yen on a one-month
basis hit more than 39 percent on Monday, according to Reuters
data, and while it has eased on Tuesday, it remained elevated
at 32 percent.
CHALLENGES TO INTERVENTION
Distressed stock market prices and the yen's rise succeeded
in getting the Group of Seven nations to warn against excessive
yen volatility on Monday, a move seen as opening the way for
Japanese officials to intervene if necessary.
While the prospect of intervention remained a real threat,
many in the market were doubtful such a move could change the
current trend for yen buying unless any central bank action was
internationally coordinated.
Analysts at Brown Brothers Harriman said there are
"operational challenges" to a coordinated intervention.
"Selling yen and buying dollars may further exacerbate the
shortage of the greenback," said Brown Brothers in a note
"Selling yen and buying euros, which while not unprecedented,
was never very common even during the heyday of BoJ
intervention in late 2003 and early 2004."
The euro, meanwhile, rose 0.4 percent on the day to $1.2521
<EUR=>, after hitting a 2-1/2-year low earlier. European
Central Bank President Jean-Claude Trichet on Monday said the
bank could cut rates at its policy meeting next week.
Trichet's comments about a possible rate cut next week
surprised the market and investors are now speculating about
the size of a move. Earlier this month, the ECB cut rates by 50
basis points together with other central banks including the
Federal Reserve.
The Fed is also seen cutting the fed funds rate --
currently at 1.50 percent -- by at least half a percentage
point at its two-day meeting starting on Tuesday.
The Australian dollar climbed 3.9 percent against the U.S.
dollar to US$0.6256 <AUD=> after the Reserve Bank of Australia
intervened to prop up the Australian currency.
It was the third straight day that the RBA intervened in
the market to boost the Australian dollar, which has lost more
than 35 percent against the greenback since peaking in July.
(Additional reporting by Jessica Mortimer in London; Editing
by Chizu Nomiyama)
