* Yen dips as safe-haven bids fade in holiday-thinned trade
* Market holidays in U.S., UK keep action low-key
* Euro gain capped after remarks by China's Wen
By Kaori Kaneko
TOKYO, May 31 (Reuters) - The euro edged up against the
dollar on Monday, recovering some of its losses made following a
downgrade in Spain's credit rating, while the yen fell broadly as
save-haven buying of it faded in holiday-thinned trade.
Euro's gains were capped after remarks by China's Premier Wen
Jiabao that international sovereign debt risks may not be over,
but market players avoided building positions up as the United
States and Britain are on holiday on Monday.
"The mood in the market is calm and stable, but that is
because few players are in the market today," said a senior
options trader at a Japanese bank.
"We're very likely to see another volatile month ahead since
the debt problems seem to be spreading into the bigger economies
in the euro zone," the trader said.
The euro is on track for a fall of more than 7 percent
against the dollar in May, in what would be its sixth straight
monthly fall and the biggest percentage drop since January 2009.
Traders say euro support lies at this month's four-year low
of $1.2143 and then around $1.2135, a 50 percent retracement of
its 2000-08 advance.
It stood at $1.2315 <EUR=> on Monday, up 0.3 percent on the
day but off an earlier high of $1.2332 hit on trading platform
EBS.
China's Wen warned on Monday that global economic growth
remained vulnerable to sovereign debt risks and the possibility
of a second downturn. []
Traders said Wen's comments prompted market players to be
cautious of China's stance on euro-zone bond holdings, even after
China's central bank said last week that Europe remains a key
investment market for China's foreign exchange reserves.
The euro fell on Friday after Fitch cut Spain's credit rating
by one notch to AA-plus, saying its economic recovery will be
"more muted" than the government forecast due to its austerity
measures. []
Underscoring worries about regional debt pressures, France
admitted on Sunday that keeping its top-notch credit rating would
be "a stretch" without some tough budget decisions, following
German hints that Berlin may raise taxes to help bring down its
deficit. []
Attention is shifting to the U.S. employment report for May
due on Friday to see if it can help market sentiment as concerns
about Europe's fiscal problems continue, traders said. []
"The market is waiting for the jobs data to see if the U.S.,
whose economic figures are relatively firm, can provide support
for the global economy," said Satoshi Okagawa, head of forex and
money trading at Sumitomo Mitsui Banking in Singapore.
The dollar rose 0.5 percent to 91.52 yen <JPY=>.
Some month-end dollar demand emerged against the yen but
Japanese exporters were expected to sell into moves up to 91.50
yen <JPY=>, traders said.
The euro rose 0.8 percent to 112.78 yen <EURJPY=R>, having
fallen 0.7 percent on Friday.
Another focus of the market this week is the meeting of
finance ministers and central bankers from the Group of 20
wealthy and developing economies in South Korea.
The meeting is expected to grapple with Europe's debt crisis,
financial reforms and efforts to rebalance the global economy.
[]
The Australian dollar was steady at $0.8476 <AUD=D4> ahead of
the Reserve Bank of Australia's policy decision on Tuesday, with
expectations the central bank will keep its key rate on hold at
4.50 percent. []
Market players said the yen may weaken further after media
polls showed support for Japan's government continued to fall
before a looming election for parliament's upper house, as calls
emerge within the ruling party for struggling Prime Minister
Yukio Hatoyama to quit over broken campaign promises.
In the latest blow to Hatoyama, the tiny Social Democratic
Party left the ruling coalition on Sunday after the premier
abandoned his pledge to move a U.S. Marine airbase off Okinawa
island in southern Japan.[]
But other traders say the impact of Japan's political
instability on the yen will be secondary to safety buying as soon
as the market turns nervous about the European debt woes.
Sterling lost 0.1 percent to $1.4449 <GBP=D4> after after a
British treasury minister, an architect of plans to rein in the
budget deficit, resigned on Saturday following revelations about
his expenses. []
(Additional reporting by Anirban Nag in Sydney, Reuters FX
analyst Krishna Kumar, and Rika Otsuka and Satomi Noguchi in
Tokyo; Editing by Michael Watson)
