* Speculators, macro hedge funds said to be selling euro
* Some talk Japan mutual funds selling euro, emerging assets
* Aussie hits 8-mth low, outlook grim
By Kaori Kaneko
TOKYO, May 20 (Reuters) - The euro fell on Thursday, edging
back towards a four-year low as investors nervous over policy
disarray in the euro zone trimmed their assets in the region and
used the previous day's bounce to sell the currency.
Higher-yielding currencies dropped, with the Australian
dollar hitting an eight-month low, as a fall in Asian shares
lowered investor tolerance of risk, traders said.
There was talk some managers of Japanese mutual funds or
"toushin" were selling assets related to emerging markets, the
euro zone and higher-yielding currencies, possibly to repatriate
funds in case stock falls led toushin holders to cancel, they
said.
The euro had rebounded from a four-year low of $1.2143 <EUR=>
on Wednesday as traders covered short positions on speculation
European monetary officials might move to check its rapid fall.
A European Central Bank spokesman declined comment on the
market rumours, and Eurogroup Chairman Jean-Claude Juncker said
in Tokyo on Thursday he did not see a need to take immediate
action. []
"After it rose above $1.2400, players such as speculators and
macro hedge funds were said be selling the currency," said a
trader at a Japanese trust bank.
"But they probably don't want to further build euro short
positions after seeing its sudden rebound on Wednesday. So the
euro may be supported around $1.23," he said.
The euro fell 0.5 percent from late U.S. trade to $1.2348,
having risen as far as $1.2433 on trading platform EBS in early
deals. It gained more than 1.7 percent on Wednesday, notching its
best one-day gain in more than a year.
Asian central banks, which have aggressively shifted foreign
currency reserves to the euro in the past, were also suspected of
selling, two traders said, helping to knock it down from $1.24.
Juncker, who met Japanese Finance Minister Naoto Kan, said
monetary authorities were closely monitoring exchange rate
developments but that he was concerned at the speed of the euro's
fall rather than its level.
The euro briefly dipped on his comments, but traders were
sceptical about the chances of intervention at this stage as euro
weakness is seen as positive for euro zone exports and financial
market turbulence was not seen as extreme enough for such action.
On the charts, it is expected to face resistance around
$1.2445, its May 18 high.
Increased uncertainty over market regulation in the euro zone
was also a negative for the euro.
A day after Germany banned naked short-selling in euro zone
bonds, CDS based on those bonds and some bank shares, cracks
appeared in the euro zone, with many European governments
wrong-footed by Berlin's unilateral action. It suggested Europe
was unable to form a united front in addressing its debt crisis.
"The euro's bounce seems like a sucker's rally," Matthew
Strauss, a senior currency analyst at RBC Capital, wrote in a
note.
"Technically, a bounce in the euro was long overdue with
daily valuations extremely oversold, net short euro positioning
also at extremes and euro 25 delta risk reversals at record
levels."
Euro/dollar one-month risk reversals <EUR1MRR=ICAP>, a
measure of currency sentiment, showed an extreme bias for puts.
The market is now favouring euro puts by about 3 percent,
partly reflecting needs among investors to hedge against further
declines in the euro, said an options trader for a major Japanese
bank.
"Due to such outright selling flows, the euro is in a pretty
solid declining trend," he said.
The dollar was little changed against the yen at 91.65 yen
<JPY=> and traders said the Japanese currency was likely to be
supported on anxiety about more regulatory curbs following
Germany's move.
Traders fear that regulators could target leveraged carry
trades next. The low-yielding yen, which is used as a funding
currency in carry trades, often gains during heightened
uncertainty and risk aversion.
As a result, the outlook for high-yielding currencies was
grim. The Australian dollar slid more than 2 percent to strike an
eight-month low of $0.8300, and has lost nearly 6 percent this
week. Against the yen, the Aussie <AUDJPY=> dived 2.4 percent to
76.14 yen.
(Additional reporting by Anirban Nag in Sydney, Masayuki Kitano
and Rika Otsuka in Tokyo; Editing by Joseph Radford)
