* China sets yuan mid-point at post-revaluation peak
* Euro, Aussie hit day's highs after yuan mid-point announced
* Spot yuan pulls back vs dollar, dents euro, Aussie
* But traders see yuan as short-term trading factor
By Rika Otsuka
TOKYO, June 22 (Reuters) - The euro slipped on Tuesday,
returning gains as China's yuan retreated against the dollar
after an early surge, prompting short-term speculators to cut
back on their initial buying of risky currencies including the
Australian dollar.
The euro and the Australian dollar hit their highs for the
day after China's central bank set the yuan's daily mid-point at
6.7980 against the dollar, stronger than Monday's 6.8275 per
dollar and the highest since the yuan's revaluation in 2005.
Traders initially took this as a sign China could allow the
yuan to rise further. But the climb in the euro and the
Australian dollar was short-lived as spot yuan <CNY=CFXS> slumped
back versus the dollar after rising to a fresh post-revaluation
high of 6.7900 in early trade.
"The euro and the Aussie slipped simply because the yuan
eased, with some players suspecting Chinese authorities might be
intervening to rein in the yuan's rise," said a senior FX trader
at a big Japanese brokerage.
The market took the yuan 0.42 percent higher on Monday, its
biggest one-day rise since the 2005 revaluation. But dealers fear
the central bank will not let the market keep boosting the yuan
at the pace seen that day.
Chinese state-owned banks are aggressively buying dollars and
selling the yuan, traders said, but it was not clear if the
buying was due to Chinese central bank intervention to keep the
yuan stable. []
The euro <EUR=> dipped 0.1 percent to $1.2307, off the day's
peak of $1.2355. It hit a one-month high of $1.2490 on trading
platform EBS on Monday after China pledged to allow the yuan to
rise, boosting confidence in the global economy.
Near-term support was seen at $1.2253, a 38.2 percent
Fibonacci retracement of the rise from a four-year low of $1.1875
on June 7 to Monday's high of $1.2490.
On the other hand, the dollar index <.DXY> was up 0.1 percent
at 85.97, holding well above support at 85.13. The index posted a
bullish reversal on Monday, suggesting more gains for the
greenback in the near term.
Beijing's vow of flexibility for the yuan, which should boost
purchasing power and demand in the the world's third-largest
economy, had initially fuelled a rally in risky assets on Monday.
But the rally ebbed with not much follow-through buying, with
China's move undertaken primarily for political purposes,
analysts said.
Leaders of the Group of 20 leading industrialised and
developing economies are to meet this weekend in Toronto, where
global trade imbalances are expected to be a key issue.
China on Monday ruled out a one-off revaluation and said it
will reform its exchange rate regime in a gradual manner.
[]
"The Chinese decision provided a welcoming short-term
distraction in a market gripped by fear and anxiety, but the
underlying European fiscal headaches and global growth
uncertainties remain unaltered," wrote Matthew Strauss, currency
strategist at RBC Capital.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Main yuan coverage []
Winners and losers from a firmer yuan []
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
Some traders said they expect the yuan to be a short-term
trading factor until a bigger trend comes to the market.
RBC's Strauss said the euro's failure to break past
resistance near $1.25 was likely to result in a period of
weakness for the single currency.
Against the yen, the euro was down 0.3 percent at 111.89 yen
<EURJPY=R>, having shed about 0.2 percent on Monday.
The euro in recent months has moved with swings in risk
appetite. On Monday, the 25-day rolling correlation between the
euro and the S&P 500 <.SPX> was at a robust 54 percent.
The fading risk rally was also evident in stock markets.
The Australian dollar <AUD=D4>, which had gained 1.4 percent
in the previous session, was at $0.8783, with support at $0.8750
-- Monday's low -- and strong resistance at Monday's $0.8860
high.
The Aussie earlier jumped to hit the day's peak at $0.8834
after the yuan mid-point fixing.
(Additional reporting by Anirban Nag in Sydney and Satomi
Noguchi in Tokyo; Editing by Joseph Radford)
