* Euro hits 7-wk high vs yen as dealers unwind yen longs
* European debt concerns linger, may weigh on euro later
* IMM speculators cut short euro positions last week
* Aussie hits 10-wk peak vs USD on higher stocks
By Rika Otsuka
TOKYO, July 26 (Reuters) - The euro hit a seven-week high
against the yen on Monday as a rise in shares prompted dealers to
unwind long yen positions, but scepticism about the credibility
of the euro zone's bank stress tests limited its gains versus the
dollar.
Traders said interbank players who had bet the euro would
fall below the key 110 yen level, or an 8 1/2-year low of 107.30
yen reached in late June, were forced to dump their short
positions as upbeat U.S. corporate earnings improved investor
risk appetite, boosting riskier assets.
Better risk tolerance also lifted higher-yielding currencies,
with the Australian dollar striking a fresh 10-week high of
$0.8982 <AUD=D4>. The Aussie now has resistance at $0.9000, with
support seen at $0.8895 ahead of $0.8860.
"In addition to higher stocks, charts suggest the euro is on
an upward trend as the currency has managed to rebound sharply
after hitting a recent low at 110.02 yen last week," said Mitsuru
Sahara, chief manager of FX derivatives trading at Bank of
Tokyo-Mitsubishi UFJ.
"It looks as if the euro will try 115 yen before falling
towards 110 yen again."
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The euro rose 0.3 percent to 113.10 yen <EURJPY=R> after
climbing as far as 113.49 yen <EURJPY=R> on trading platform EBS,
its highest since early June. It jumped nearly 0.8 percent on
Friday.
It kept in a tight range against the dollar in Asian trade as
players awaited Europe's reaction to the stress test results.
Just seven of 91 banks failed the tests, including some in
Greece and Spain, for an overall capital shortfall of 3.5 billion
euros. []
Some considered the conditions too lenient, leading to low
capital requirements and fuelling doubts about the exercise.
[].
"On the surface, if anything, you have to take these tests
with a pinch of salt," said Jonathan Cavenagh, currency
strategist at Westpac, Sydney.
"Sovereign debt problems remain, funding constraints for
their banks are still there and these have the potential to weigh
on the euro."
The euro inched up 0.1 percent on the day to $1.2916 <EUR=>.
Near term support is seen around $1.2870, its 100-day moving
average.
Speculators have been cutting net short positions in the
euro, with the Commodity Futures Trading Commission data showing
net shorts at 24,251 contracts in the week to July 20 compared
with 27,050 in the prior week. [].
Fears of a euro zone debt crisis and its impact on European
banks had driven the euro below $1.19 last month, its lowest
since 2006. But it began a swift recovery in July and hit a
10-week high above $1.30 earlier last week.
That was partly driven by data showing the euro zone economy
has been holding up better than anticipated, even as governments
tighten their belts to rein in large deficits.
On the other hand, recent U.S. housing and manufacturing data
has suggested a recovery there may be fizzling.
Economists have steadily marked down forecasts for Friday's
U.S. gross domestic product report. []. More signs
of a slowdown in the manufacturing sector and consumer spending
in the United Sates this week could push down yields and prompt
investors to increase short positions on the greenback, traders
said.
The dollar index <.DXY> was steady at 82.50. The dollar
inched up 0.1 percent against the yen to 87.55 yen <JPY=>.
The low-yielding yen, which often takes a beating when stocks
gain, was broadly under pressure.
Tokyo's Nikkei stock average <> gained 0.8 percent after
the Standard & Poor's 500 Index <.SPX> rose above 1,100 on Friday
as General Electric <GE.N> raised its dividend and Honeywell
<HON.N> posted better-than expected results. [] []
(Additional reporting by Anirban Nag in Sydney; Editing by
Joseph Radford and Charlotte Cooper)
