* China move boosts commodity currencies
* Dollar/yen rises as Japanese unit struggles broadly
* Euro lower; traders cite BNP ratings cut (Recasts, updates prices, adds quote, byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, June 21 (Reuters) - The U.S. dollar gained against the yen as the Australian and New Zealand currencies hit over one month highs on Monday after China's vow to allow a flexible yuan rekindled optimism about global recovery.
Beijing's announcement over the weekend should boost purchasing power and demand in the the world's third largest economy. It should also help global companies that sell to China and underpin commodity-tied currencies such as the Australian dollar.
"China's move has unleashed improved confidence and higher risk appetite," said Richard Franulovich, senior currency strategist, at Westpac in New York.
"Commodity currencies such as the Aussie and Kiwi will always be the biggest beneficiaries on the ground that yuan strength raises China's purchasing power. If the Aussie is trading the way it is, then that tends to drag Aussie/yen, Kiwi/yen higher. And dollar/yen gets dragged in that vortex as well."
The Chinese currency closed at its highest level against the U.S. dollar since its July 2005 revaluation. The yuan ended the day at 6.7976 against the dollar, up 0.42 percent from Friday's close of 6.8262. It hit a high of 6.7958 in intraday trade, an all-time high since the revaluation, and up as much as 0.47 percent from the central bank's mid-point, nearing its limit of 0.5 percent. See [
].In early afternoon trading, the high-yielding Australian dollar <AUD=D4> gained 0.6 percent to US$0.8774, off an earlier one-month peak at US$0.8860.
One-month AUD/USD risk reversals, a measure of currency sentiment in the options market, are still showing a bias for puts -- suggesting expectation of further declines -- at -4.20 vols <AUD1MRR=GFI> on Monday, from -4.425 last Friday. But Aussie risk reversals have come off extreme levels.
Two weeks ago, the put bias on the Aussie traded as high -5.875 vols given the negative global risk appetite arising from the euro zone debt crisis.
KIWI GAINS, EURO FALLS
The New Zealand dollar <NZD=D4> rose 0.2 percent to US$0.7081 after an earlier high at US$0.7153, its strongest level since May 14.
The U.S. dollar rose 0.4 percent against the yen <JPY=> to 90.99, boosted by steep gains in the Australian dollar/yen cross <AUDJPY=R> and New Zealand dollar/yen pair <NZDJPY=R>.
Some analysts, however, believe the impact on the market of of the latest news from China could be short-lived.
"China has an incentive to frontload moves before the G20 meeting and the U.S. currency report so we could see a continuation of these moves through most of this week and possibly into next," said Steven Englander, Citigroup's global head of currency strategy. "But the incentive for China to make currency moves after the currency report is released diminishes." ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Main yuan coverage [
] Winners and losers from a firmer yuan [ ] Reuters insider: http://link.reuters.com/nyq23m ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^The euro, meanwhile, fell 0.5 percent to $1.2317 <EUR=EBS>, after earlier trading to a one-month high $1.2490, according to electronic trading platform EBS.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York attributed the decline in the euro to news ratings agency Fitch cut BNP Paribas' long-term international rating to AA- from AA. See [
]."The break down (in the euro) now leaves a potential key reversal pattern unfolding. A close below there would signal an immediate test on the $1.2290 and possibly as low as $1.2200," Chandler said.
(Additional reporting by Nick Olivari: Editing by Andrew Hay)