* Dollar and yen ease ahead of U.S. GDP and Fed's decision
* Yen drops across the board in light trading
* Aussie, kiwi regain ground as risk aversion ebbs
By Anirban Nag
SYDNEY, April 29 (Reuters) - The U.S. dollar and the yen
fell on Wednesday as risk aversion subsided slightly, lifting
high-yielding currencies, though many were cautious ahead of
U.S. gross domestic product data and a Federal Reserve meeting.
Trading was light in Asia with Tokyo shut for a local
holiday. Selling in the yen <JPY=>, however, picked up with the
euro rebounding from six-week lows against the Japanese
currency <EURJPY=R> and the Aussie <AUDJPY=R> recovering
strongly from a one-month low.
Investors unwound some of the safe-haven trades of recent
days, partly in response to improved U.S. economic data on
consumer confidence and home prices, which supported tentative
hopes the economy may be stabilising. []
The euro rose 0.8 percent to 127.83 yen <EURJPY=R on
trading platform EBS, from a 6-week low below 124.40 yen on
Tuesday, while the Aussie jumped more than 1.5 percent on the
day to as high as 69.27 yen <AUDJPY=R> from a one-month low.
Dealers said the rise was fuelled in part by short-term
speculators covering short positions taken out at the start of
the week when concerns about the swine flu outbreak escalated.
"The market is not ignoring swine flu but putting it in a
bit more perspective and looking to put risk trades back on, so
there's been buying in euro/yen," said Gerrard Katz, head of
currency trading at Standard Chartered in Hong Kong.
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The U.S. dollar also gained 0.4 percent against the yen to
96.82 yen <JPY=>. Traders said sell offers were building at
97.00-20 and preventing the U.S. currency from making further
gains.
The Federal Reserve ends a two-day meeting on Wednesday and
while rates are already near zero, analysts will be looking for
any extension of quantitative easing and for any comments
supporting a theory of green shoots of recovery appearing in
the world's largest economy.
The Fed is due to issue a statement around 1815 GMT.
Patrick Bennett, a currency and rate strategist at Societe
Generale, suspects the Federal Open Markets Committee (FOMC)
will not entirely buy into the "green shoots" theory.
"There is a temptation to building on green shoots, but we
suspect the FOMC will be cautious on the growth outlook and
this could be a disappointment for investors," said Bennett.
U.S. GROWTH DATA
Markets also wait for first-quarter U.S. gross domestic
product figures due at 1230 GMT. Median forecast is for an
annualised contraction of 4.9 percent, but estimates range as
deep as an 8.0 percent drop <ECONUS>.
"Business investment and inventories will subtract
drastically from growth, but if our view of a 2.8 percent
contraction is correct, risk will certainly get another boost,"
said Alan Ruskin, chief international strategist at RBS Global
Banking and Markets.
Risk appetite took a beating on Tuesday after the Wall
Street Journal reported regulators had told Citigroup Inc <C.N>
and Bank of America <BAC.N> they may need to raise more capital
based on early results of the government's stress tests on
banks. [].
"The market is pretty neutral right now on risk appetite.
Let's see what happens with the stress tests," said a senior
trader at a U.S. bank in Hong Kong.
The U.S. authorities are due to publish the results of
"stress tests" of U.S. banks next week.
The euro found support from comments by a senior European
Central Bank official, Lorenzo Bini Smaghi, who doused
expectations that the ECB will embark on quantitative easing --
a policy of flooding the economy with funds to jump-start
spending and lending. []
Speculation the ECB may announce unconventional policy
steps at its May 7 meeting has hurt the euro in recent weeks.
But it extended gains on Wednesday, rising 0.4 percent on the
day to $1.3205 <EUR=>.
(Additional reporting by Eric Burroughs in Hong Kong and
Charlotte Cooper in Tokyo; Editing by Tomasz Janowski)
