* Dollar and yen slip as stocks gain, risk aversion eases
* Government aid for banks offset Citi, BoA results
* U.S. net capital inflows fall sharply in November
(Recasts, adds quotes, updates prices, changes byline,
changes dateline, previous LONDON)
By Wanfeng Zhou
NEW YORK, Jan 16 (Reuters) - The dollar and the yen fell
sharply against the euro on Friday as a rally in stocks around
the world and fresh government aid for U.S. banks revived
investor optimism and some risk appetite.
The euro also was recovering from a sell-off in the
previous session as traders reassessed European Central Bank
President Jean-Claude Trichet's comments following the ECB's
decision to cut rates by a half percentage point to 2 percent.
"We have a much healthier risk appetite. That's definitely
helping the euro," said Boris Schlossberg, director of currency
research at GFT Forex in New York.
The market was re-thinking the implications of comments on
Thursday by Trichet, who said any further ECB rate cuts will be
postponed until March at the earliest and dismissed the idea of
cutting rates close to zero, as the United States and Japan
had, analysts said.
"Essentially, there's going to be a floor on European
rates...which will leave the euro with a moderately higher
yield than the dollar and the yen," Schlossberg said.
In early trading in New York, the euro gained 1.2 percent
to $1.3314 <EUR=>, rebounding from a five-week low of $1.3025
hit on Thursday, according to Reuters data.
The euro rallied 2.1 percent to 120.52 yen <EURJPY=>, while
the dollar gained 0.8 percent to 90.51 yen <JPY=>.
Risk appetite picked up on Friday with stocks rallying
after Bank of America <BAC.N> received a $20 billion government
capital injection, overshadowing signs of more fallout from the
credit crisis for the financial sector.
Those measures along with the prospect of another bank
lending package in Britain [] eased investor concerns
and boosted higher-yielding currencies such as the Australian
and New Zealand dollars.
"The fact that we are now seeing the U.S. and even UK
authorities looking at further help for the financial and
banking system have provided some relief," BNP Paribas senior
currency strategist Ian Stannard said in London.
"While the equity market rebound continues, we're likely to
see euro/dollar maintain its current recovery," he added.
The dollar lost more ground against the euro after a
Treasury Department report showed investors sold U.S. Treasury
bonds in November for the first time since August 2007, when
the credit crunch began. Foreign selling of U.S. Treasuries
amounted to $22.88 billion compared with inflows $32.87 billion
the previous month.
Net capital inflows into the United States fell to $56.8
billion in November from a revised inflow of $260.6 billion in
October, according to the report.
MORE AID
The aid for Bank of America followed the U.S. Senate's
decision to allow the second half of a $700 billion bank
bailout program, handing an early political victory to
President-elect Barack Obama, who will be sworn in next Tuesday
[].
Also, Democratic leaders in the House of Representatives
have unveiled an $825 billion tax cut and spending bills they
hope will help Obama reverse the economic slump, offsetting
fears of soaring losses at the top three U.S. banks.
The Australian and New Zealand dollars gained 1.8 percent
and 2 percent versus the U.S. currency respectively <AUD=>
<NZD=>.
Sterling also surged, rising 2.1 percent to $1.4953<GBP=>.
Despite the boost from the news about government aid,worries about the banking sector were not far from investors'
minds, as Citigroup <C.N> and Bank of America both reported a
fourth quarter loss. Citigroup also said it would split into
two operating units.
Meanwhile, Ireland nationalized its third largest lender,
Anglo Irish Bank <ANG.L>.
(Editing by Chizu Nomiyama)
