* Market optimism gives way to caution, lifting yen, dollar
* BOJ keeps rates steady, expands assets used for market ops
* RBA cuts rates by 25 bps to 3.0%, Aussie pulls off lows
By Kaori Kaneko
TOKYO, April 7 (Reuters) - The yen and the dollar rose on
Tuesday as renewed nervousness about banks' health stalled a
rally in riskier assets, but the Australian dollar climbed after
its central bank opted for a modest rate cut.
With many Asian stock markets in the red after a fall on Wall
Street on Monday, the yen and the dollar benefited as investors
took defensive positions and pocketed profits from a recent run
higher in the euro and higher yielding currencies.
But the Australian dollar rose against the greenback after
the Reserve Bank of Australia, in a much-awaited decision, cut
its key cash rate by 25 basis points to a record low of 3.0
percent, less than some had wagered. []
The Aussie hit a three-month high against the dollar last
week and a five-month peak against the yen on Monday as a rise in
risk tolerance made it and other higher yielding currencies a
target for short-term yield plays.
It then fell early on Tuesday as a warning about banks
knocked stocks down and boosted demand for dollars and yen. []
"With the uptrend of the Aussie, market players were looking
for chances to buy on the dips. So after the uncertainty factor
got cleared away, they were comfortable buying back the
currency," said Mitsuru Sahara, chief manager at Bank of
Tokyo-Mitsubishi UFJ.
"There is demand for the Aussie from those who want to bet on
the economic recovery," he said.
The Aussie rose 0.2 percent on the day to $0.7133 <AUD=D4>
and pulled off the steepest of its lows against the yen to stand
just 0.4 percent down at 71.70 yen <AUDJPY=R>. It leapt to a
six-month high of 72.87 yen on Monday.
AFTER THE RALLY, THE PROFIT-TAKING
The Bank of Japan kept rates steady at 0.1 percent as
expected and unveiled further steps to ease credit strains, as
the world's No.2 economy wallows in its worst postwar recession
amid a global credit crisis. []
The central bank also expanded the range of collateral
eligible for market operations to include loans on deeds to the
government, loans with government guarantees and loans on deeds
to municipal governments.
The dollar eased once the decision was out of the way,
falling 0.6 percent on the day to 100.41 per dollar <JPY=>.
It had hit its highest in nearly six months on Monday, at
101.45 yen, and one analyst said it needed to remain above 99.70
yen, which was the breakout point for its latest leg higher, if
it were to stave off a deeper correction.
The euro fell 0.8 percent to 134.50 yen <EURJPY=R>, after
touching 137.42 yen on Monday, its highest since late October.
It fell 0.3 percent on the day to $1.3375 <EUR=>, while the
dollar also gained against sterling and the New Zealand dollar.
Traders said the decline in the euro and higher yielding
currencies was driven by profit-taking after their recent gains,
as well as jitters about the health of the banking sector.
UK daily the Times said on its website that new IMF forecasts
were set to suggest toxic debts racked up by banks and insurers
could spiral to $4 trillion, although it gave no sources for the
report. []
Analysts and traders said while the report fed into the
concerns about the banking sector, there was also plenty of
reasons to take profits ahead of the U.S. earnings season and
investor confidence was still very fragile.
"The currency market has simply been reacting to recent
stocks moves. It's too early to say optimism in the market will
continue," said Satoshi Okagawa, head of FX forward trading group
at Sumitomo Mitsui Banking.
"We need to see upcoming earnings from financial corporations
and the results of 'stress tests' among (U.S) banks," he added.
(Additional reporting by Charlotte Cooper; Editing by Hugh
Lawson)
