* Fed to reinvest maturing mortgage debt in Treasuries
* Fed offers more somber assessment of growth
* Dollar seen likely to come under pressure
* Contrast with BOJ inaction may weigh on dollar vs yen
* Yen surges broadly as Nikkei, Asian shares fall
By Masayuki Kitano and Rika Otsuka
TOKYO, Aug 11 (Reuters) - The dollar hovered within sight of
a 15-year low versus the yen on Wednesday after the Federal
Reserve announced plans to boost a flagging economy by
reinvesting money from maturing mortgage bonds in government
debt.
But the greenback rose against the high-yielding Australian
dollar and other major currencies as traders reduced their
exposure to risk as U.S. and Asian shares fell even after the
Fed's action.
Although the Fed's move did not come as a complete surprise
to the market, it marked a policy shift for the U.S. central
bank, which only a few months ago debated how to start winding
down some of its monetary stimulus programmes. []
The Fed's pledge to maintain asset purchases and shift to
Treasuries does suggest it may boost the size of its already
massive $2.3 trillion balance sheet if the economy loses
momentum, market players said.
The dollar dipped 0.1 percent from late U.S. trade on Tuesday
to 85.37 yen <JPY=>, edging back towards an eight-month low of
85.02 yen hit on trading platform EBS last week. A drop below
November's low of 84.82 yen would take the dollar to a 15-year
low.
"The dollar could fall below 85.00 yen at any moment," said
Shuichi Kanehira, head of FX spot trading at Mizuho Corporate
Bank.
Market players cited talk of stop-loss offers in the dollar
near 85.00 yen, 84.80 yen and 84.75 yen, and large option
barriers at 84.75 yen and 84.50 yen, suggesting that the dollar's
drop against the yen could gain momentum if such levels are hit.
"Given the contrast with the BOJ's decision yesterday, we
seem to have entered a situation where the yen is likely to
rise," said Akira Hoshino, chief manager for the Bank of
Tokyo-Mitsubishi UFJ's foreign exchange trading department.
The U.S. central bank acknowledged economic growth had slowed
in recent months and reiterated its intention to hold benchmark
interest rates at record lows for an extended time.
"(The Fed's) decision should be seen primarily as a signal to
financial markets, consumers and businesses that the FOMC is
ready to start a second round of quantitative easing if the
Committee sees a double dip around the corner," Rabobank analyst
Philip Marey said in a research note, referring to the U.S.
central bank's policy-setting Federal Open Market Committee.
YEN ON THE RISE
The Bank of Japan kept interest rates steady and held off on
new policy steps on Tuesday, saving its limited firepower in case
the currency's rise accelerates.
Fears that the yen's rise could accelerate hit Tokyo shares,
with the Nikkei share average <> sliding more than 2
percent. Shares also fell more than 1 percent in South Korea
<> and Australia <>.
"The fall in share prices is worrying. If U.S. data continues
to deteriorate, the Fed will be urged to take more easing steps,"
said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank.
The fall in equities had a feedback effect on the yen,
helping to lift it against higher-yielding currencies and other
major currencies.
The Australian dollar shed 0.9 percent against the yen to
77.35 yen <AUDJPY=R>, the euro lost 0.4 percent to 111.75 yen
<EURJPY=R>, and sterling fell 0.5 percent to 134.78 yen
<GBPJPY=R>.
The low-yielding yen is a funding currency for carry trades
and tends to rise in times of market stress.
A drop in the dollar below 84.82 yen could trigger more
market speculation about the possibility of Japanese
intervention.
Traders think the yen will eventually test those levels as
Japan is unlikely to intervene to curb the yen's strength unless
dollar/yen falls closer to 80 yen, or its moves become more
volatile.
The euro fell 0.6 percent to $1.3099 <EUR=>, pulling away
from last week's three-month peak of $1.3334 and hitting
stop-loss orders scattered around $1.3150-$1.3130.
But the euro could be poised to rise in the wake of the Fed's
decision and economic assessment, analysts said.
"With further policy moves now a clear possibility, the USD
will come under pressure beyond the impact of U.S.-Euro area
growth divergence alone," analysts at JPMorgan said.
(Additional reporting by Hideyuki Sano, Wayne Cole in Sydney and
Reuters FX analyst Rick Lloyd in Singapore; Editing by Chris
Gallagher)
