* Yen breaks 85 yen to 14-year high vs dlr, then retreats
* Japan finance minister raises prospect of G7 statement
* Riskier positions unwound on concerns about Dubai debt
* Dollar off highs as equities pare losses
(Updates prices, adds comment, detail)
By Wanfeng Zhou
NEW YORK, Nov 27 (Reuters) - The dollar rose against the
euro and a basket of currencies on Friday as fears of a
possible Dubai debt default boosted the greenback's safe-haven
appeal.
But the dollar lost some momentum while the yen retreated
from a 14-year high versus the greenback as U.S. equities
trimmed losses. Low trading volume a day after the U.S.
Thanksgiving holiday on Thursday may have exaggerated moves,
traders said.
Dubai on Wednesday said it would ask creditors of two
flagship firms, including conglomerate Dubai World, for a
standstill on debt payments as part of a restructuring. For
details, see [].
"Whenever there is a situation where traders are unsure
about how the political or economic environment will pan out,
such as Dubai's woes, they always sell first and ask questions
later," said Kathy Lien, director of currency research at GFT
Forex in New York. "The U.S. dollar and Japanese yen are the
biggest beneficiaries of this selling."
The potential magnitude of the event, measured by Dubai
World's $59 billion in debt, shook markets on concern over
contagion in the banking sector, but a recovery in U.S. and
European stocks suggested some investors expected the event
would not derail a recovery.
The ICE Futures U.S. dollar index, a measure of its value
against six major currencies, was up 0.3 percent at 75.032
<.DXY>, having been up around 1 percent earlier.
The euro was down 0.4 percent at $1.4953 <EUR=>, having
earlier slid as low as $1.4830, down more then 3 cents from a
15-month high of $1.5144 touched on Wednesday.
The dollar fell as far as 84.83 yen <JPY=>, its weakest
since 1995, edging ever closer to its record low of around
79.75. It last traded at 86.78 yen, up 0.4 percent on the day.
"It is likely to take at least a few days before the
implications of the impact of a possible default from Dubai are
properly digested, but for the present it seems that the market
is seeing this negative news as a blow to the global recovery
but not one that will push it off course," said Jane Foley,
chief strategist at Forex.com.
On the week, the euro gained 0.6 percent against the dollar
while the greenback fell 2.3 percent versus the yen.
JAPAN IN SPOTLIGHT
Analysts say the yen also pulled back after Japan signaled
growing discomfort with the yen's surge and Finance Minister
Hirohisa Fujii raised the prospect of a Group of Seven joint
statement on currencies. See [].
The Bank of Japan stepped closer to currency intervention
on Friday than at any time in the last five years by checking
exchange rates with commercial banks. Still, market sources
said intervention was highly unlikely in the short term.
[]
Japanese National Strategy Minister Naoto Kan also said on
Friday the Japanese government and the Bank of Japan will act
together to deal with the rise in the yen and that he was
considering measures himself. See [].
"I don't think the signals from the Japanese officials have
been particularly aggressive, but that's in the back of
market's mind that the yen (apart from the Swiss franc) stands
the highest chance of actually seeing some action from the
authorities," said Vassili Serebriakov, currency strategist at
Wells Fargo in New York.
"If we were to trade consistently below (85 in dollar/yen),
the chance of intervention will rise substantially," he added.
G7 countries issued a statement in October 2008 when the
yen rallied against other major currencies, so traders and
analysts said a joint statement by the group, or the bigger
G20, was possible. Others doubted the chance of joint
intervention above 80 yen.
The speed and scale of dollar/yen's fall was such that a
recovery was always likely, analysts say, particularly after
Fujii said the moves were "extreme" and it was possible Japan
could respond.
Commodity-linked currencies fell as oil dropped more than 2
percent <CLc1> and gold <XAU=> traded lower. The Australian
dollar shed 0.8 percent to US$0.9059 <AUD=> and the New Zealand
dollar lost 0.9 percent US$0.7094 <NZD=>.
(Editing by Kenneth Barry)
((wanfeng.zhou@thomsonreuters.com; +1 646 223 6304; Reuters
Messaging: wanfeng.zhou.reuters.com@reuters.net))
