* Euro jumps to highest in 8 months against dollar
* U.S. quantitative easing worries weaken the dollar
* USD erases earlier gains vs yen triggered by BoJ moves
(Updates prices, adds quote, byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Oct 5 (Reuters) - The U.S. dollar fell to an
eight-month low against the euro on Tuesday as a surprise
easing by the Bank of Japan rekindled risk appetite and
prompted buying of currencies and assets with higher returns.
In volatile trading, the yen strengthened despite a cut in
the BoJ's overnight rate target to 0-0.1 percent from 0.1
percent, pushing the dollar near levels that triggered the Bank
of Japan's September 15 intervention.
The BoJ also said it would create a pool of funds to buy
assets in the face of evidence a stronger yen was hurting
Japan's economy. For details, see []
"The BoJ took further steps to provide stimulus to the
economy and that has given a boost to risk appetite. As a
result, we have seen the dollar come off a lot against the
euro," said Eric Viloria, senior currency strategist at
Forex.com in New York.
Japan's action also spurred a rally in U.S. stocks and
commodities.
In early afternoon trading, the the euro was up 1.1 percent
at $1.3832, off a session high of $1.3852 <EUR=EBS>, the
highest since Feb. 4, according to electronic trading platform
EBS. There are reportedly stops above $1.3852.
Traders cited Asian central bank buying of euros against
the dollar, while a U.S. bank was also seen buying, driving it
up sharply from well below $1.3700. Asian central banks have
been diversifying their currency reserves away from the dollar,
particularly toward the euro.
Analysts said the next big level in euro/dollar is around
$1.3897, the 61.8 percent Fibonacci retracement of the move
from the November 2009 peak and the June 2010 low. After that,
the focus is $1.40, a key psychological level where most
investors tend to take profit.
RISK-POSITIVE ISM
Further boosting risk appetite was a report which showed
the U.S. services sector expanding more than expected in
September. The index showed a reading of 53.2 from 51.5 in
August, with a forecast of 52.0. []
Against the yen, the dollar was down 0.1 percent at 83.26
yen <JPY=>, reversing a climb to a session high of 83.99 yen on
EBS after the BoJ decision. The EBS low was 82.96 yen
<JPY=EBS>.
Analysts said the BoJ's moves were not sufficient to halt
the downward trend in dollar/yen, with the U.S. currency
pressured by falling U.S. bond yields and expectations the
Federal Reserve will implement fresh quantitative easing.
Still some analysts suggested the market may be setting
itself up for a disappointment if it continues to expect the
yen to strengthen.
"The market is kind of dismissing the BoJ's announcement
overnight by buying the yen against the dollar," said Richard
Franulovich, senior currency strategist, at Westpac in New
York. "But I think they're missing the message, which is there
is more quantitative easing to come. The yen as a result is
going to be hit hard on all the crosses."
The yen fell against other currencies, with the euro
<EURJPY=> up nearly 1 percent at 114.95 yen.
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Reuters Insider show on BOJ reaction:
http://link.reuters.com/tuh86p
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The euro's sharp gains pushed the dollar index to its
weakest since January at 77.698 <.DXY>, while the dollar hit a
2-1/2-year low versus the Swiss franc <CHF=>.
Talk of the United States adopting more quantitative easing
grew after Fed Chairman Ben Bernanke said on Monday more Fed
asset purchases could further ease financial conditions.
[]
Analysts said the fact the European Central Bank has not
hinted at policy easing measures was seen as positive for the
euro, which shrugged off a Moody's warning that the agency
might cut Ireland's debt ratings. []
(Additional reporting by Nick Olivari; Editing by Kenneth
Barry)
