* Yen up as market cheers opposition win in Japanese vote
* Chinese stocks drop over 6 pct, also helping the yen
* Dollar gains vs euro, higher risk FX
By Jessica Mortimer
LONDON, Aug 31 (Reuters) - The yen rose broadly on Monday,
hitting a seven-week high against the dollar, buoyed by a
decisive result for the opposition in Japanese elections and
after falls in Chinese shares left investors averse to risk.
Sunday's landslide win by the Democratic Party of Japan
(DPJ) sparked hopes that new policies will support consumer
spending in an economy trapped in deflation and haunted by a
weak growth outlook. []
This helped lift the Japanese currency, though traders noted
that gains could be limited as jitters set in about what a new
government may herald.
The yen was also helped by a 6.7 percent fall in Chinese
stocks <> that stoked risk aversion.
In Europe shares fell 0.7 percent <>, also boosting
the dollar and weighing on the euro and currencies perceived to
be higher risk such as sterling and the Australian dollar.
Trading was expected to be quiet, however, with UK markets
closed for a public holiday.
"Risk aversion due to the falls in the Shanghai stock index
and relief at the lack of uncertainty in the Japanese election
result have lifted the yen," Commerzbank currency strategist in
Frankfurt Antje Praefcke said.
"But markets are very thin and there have been some sharp
movements due to the lack of liquidity," she added.
Sentiment towards the yen was also helped by economic data
showing Japanese manufacturing activity at its strongest in
almost three years in August, as well as industrial output
rising a bigger-than-expected 1.9 percent in July.
[] []
At 0807 GMT, the dollar was 0.9 percent lower at 92.80 yen
<JPY=>, hovering just above an earlier low of 92.54 yen hit on
trading platform EBS, its weakest level since mid-July.
The euro fell 1 percent against the yen to 132.46 yen
<EURJPY=R>, while it dipped 0.1 percent against the dollar to
$1.4277 <EUR=>.
Though a quiet day, investors will be watching for the
release of preliminary euro zone inflation data for August at
0900 GMT, which is forecast to show a decline of 0.3 percent
year-on-year after a bigger 0.7 percent fall a month earlier.
<ECON>
The Chicago purchasing managers' index is also due for
release at 1345 GMT.
Heightened risk aversion as Chinese equities dived to a
three-month closing low and recorded their second biggest
monthly loss in 15 years weighed on riskier currencies.
The Australian dollar fell 0.5 percent against the dollar to
$0.8379 <AUD=D4> and more than 1 percent versus the yen to 77.76
yen <AUDJPY=>, while sterling fell 0.4 percent against the
dollar to $1.6206 <GBP=D4>.
NEW GOVERNMENT UNCERTAINTY
Analysts said investors may be cautious about buying the yen
too aggressively, given the uncertainty that will accompany the
advent of a new government in Japan, as well as the country's
high levels of government debt.
The Democrats' leader, Yukio Hatoyama, has said he would not
name a cabinet until the new parliament had voted him in as
prime minister but he is expected to set up a transition team
quickly. []
A Reuters survey showed the Democratic Party of Japan's
stance on fiscal discipline remains a source of concern for
market players, along with its stance on diplomacy including
U.S.-Japan relations. [].
"The yen's firmness has been helped by hopes for a change,
but how the DPJ-led government will work is unclear so the
impact may not last too long," one senior trader for a Japanese
bank in Tokyo said.
Commerzbank's Praefcke also said fiscal concerns would weigh
on the yen in the medium term.
Traders and analysts in bond, stock and foreign exchange
markets surveyed by Reuters on Monday said dollar/yen is likely
to be at 95 yen at the end of March 2010 after trading at 92.50
yen at year-end.
(Additional reporting by Satomi Noguchi in Tokyo; Editing by
Ruth Pitchford)
