(Updates prices, adds quote and comment, changes byline)
* Citi merger talk, equity rebound prompt FX turnaround
* Sterling also rises as risk aversion cools
* Weak euro zone PMI a reminder of economic distress
* For up-to-the-minute market news, click on <FXNEWS>
(Updates prices, adds comments, changes byline, dateline)
By Steven C. Johnson
NEW YORK, Nov 21 (Reuters) - The dollar and yen fell on
Friday as global stocks rebounded and reports that banking
giant Citigroup was mulling a merger with another firm helped
quell market anxiety.
The more relaxed mood prompted those who had lately sold
risky assets in favor of the U.S. and Japanese currencies to
reverse course and move back gingerly into stocks, commodities
and higher-yielding currencies such as the euro and sterling.
"It feels like we've reached a point where total fear is
receding a little. There's an inkling of hope that we may be
near a bottom, which is reflected in equities and high-yielding
currencies today," said Boris Schlossberg, senior currency
strategist at GFT Forex in New York.
Geoffrey Yu, currency strategist at UBS in London, said
"the market is trying to be optimistic but not get carried
away."
Early in New York, the euro was up 0.9 percent at $1.2575
<EUR=> though it was off a $1.2640 session high. It rose 1.8
percent to 119.22 yen <EURJPY=>. Sterling added 1.6 percent to
$1.4964 <GBP=>. The dollar rose 1 percent to 94.90 yen <JPY=>.
Asian and European shares also rose and Wall Street opened
on a firm footing, lifted partly by news that Citigroup <C.N>,
which lost half its market value this week, was considering
selling parts of its business or merging with another company.
Citigroup's board of directors is scheduled to meet on
Friday to discuss options, the Wall Street Journal reported,
citing people familiar with the situation. For details, see
[]
Worries about the future of Citigroup on Thursday had
pushed the bank's shares to their lowest in more than a decade,
helping drive the S&P 500 index to its weakest point since
1997.
But while the reports about Citi on Friday eased some
concern about another major bank failure, some said it would
not be enough to improve lending conditions and pull markets
out of their malaise.
Analysts at Brown Brothers Harriman said both the euro and
sterling are overbought and are ripe for a reversal before the
day is through, as neither has been able to move above key
resistance levels of $1.2660 and $1.51, respectively.
Schlossberg said the test will be whether investors feel
confident enough to remain long U.S. equities and higher risk
currencies such as the euro and sterling through the weekend.
"If you see people buying equities into the close today,
that will be euro and sterling positive, but if stocks sell off
in late trade, currencies will react and the dollar and yen
should benefit," he said.
Earlier, euro zone data showed the manufacturing and
service sectors contracting much more quickly and deeply than
expected in November, rekindling worries about global growth.
The weaker-than-expected PMI survey "likely will feed the
recession fears gripping markets and pose more downside for
risk assets," JP Morgan currency strategists said in a note.
The yen was mostly a victim of renewed risk appetite on
Friday, though it also buckled when Finance Minster Shoichi
Nakagawa said authorities must be ready to deal with market
price swings []. Analysts said investors saw that
as a warning that Japan could still step in to slow yen gains.
(Additional reporting by Naomi Tajitsu in London; Editing
by Chizu Nomiyama)
