* Risk aversion accelerates as Tokyo returns from holiday
* Dollar hits 2-month low vs yen on risk aversion
* Potential Fed rate cut later in day also weighs on dollar
* Asian shares drop in wake of Lehman collapse
By Shinichi Saoshiro
TOKYO, Sept 16 (Reuters) - The U.S. dollar slumped against
the yen on Tuesday as risk aversion spread on the back of a slump
in equities following the collapse of Lehman Brothers Holdings
Inc <LEH.N>. []
Investors in Tokyo had their first chance to fully react to
the Lehman debacle on Tuesday as Japanese markets were closed on
Monday for a public holiday.
They returned from the long weekend by selling the dollar,
pushing the U.S. currency, which has already suffered a sharp
decline against the yen Monday on risk aversion, to a new
two-month low versus the yen.
Asian stocks dropped on Tuesday with markets in Japan and
Hong Kong down more than 5 percent, in response to a tumble on
Wall Street that sent the Dow Jones industrial average down 4.4
percent. [] []
"We are watching Tokyo shares closely after U.S. stocks took
such heavy hits in response to Lehman. The yen stands favoured
against its major peers such as the dollar under these
circumstances," said a dealer at a Japanese securities house.
"The dollar also looks out of favour with talk that the Fed
may ease monetary policy later in the day," the dealer said.
There is speculation that the Federal Reserve, which will
hold a regular policy meeting on Tuesday, may cut interest rates
again from the current 2.0 percent by as much as an aggressive 50
basis points.
The dollar slipped 0.2 percent to 104.45 yen <JPY=>, on track
towards a four-month low of 103.77 yen hit in July. The euro fell
0.2 percent to $1.4230 <EUR=>, off the near-term peak of $1.4482
struck on Monday. The euro slid 0.4 percent to 148.48 yen
<EURJPY=>.
Market watchers said the overall currency market reaction
during Asian trading was limited relative to moves in equities
and government bonds.
The lead Japanese government bond 10-year futures <2JGBv1>
initially surged three points and triggered a circuit break that
forced a halt in trade, in response to Lehman. []
"What differs from the Bear Stearns debacle in March, when
the dollar was sold off more sharply, is that the United States
is no longer the only economy looking bad, and this is limiting
the dollar's downside," said Takahide Nagasaki, chief forex
strategist at Daiwa Securities SMBC.
Takasaki, however, said the credit crisis was far from over
and that the dollar was likely to remain on the defensive in the
longer term.
High yielding currencies like the Australian <AUD=> and New
Zealand dollars <NZD=> also took heavy hits against the yen.
[] []
Increased aversion toward risk has led institutional
investors to unwind carry trades, which are funded by borrowing
the low-yielding yen.
Traders said selling by Japanese retail investors in an
attempt to cut losses also added to the Aussie and kiwi's
downturn.
The Aussie sank 2 percent to 82.37 yen after touching 82.15,
its lowest since March 2006. The kiwi dropped 1.4 percent to
67.82 yen.
(Editing by Hugh Lawson)
