* Dollar/yen hits 8-1/2-month low, fails to breach key level
* Dollar claws back but retains negative bias
* Aussie, kiwi, CAD gain; focus on U.S. earnings season
(Adds comment, details, updates prices)
By Naomi Tajitsu
LONDON, Oct 7 (Reuters) - The yen rose broadly on Wednesday,
hitting an 8 1/2-month high against the dollar as market players
probed how far Japanese authorities would allow the yen to rise.
The dollar later trimmed losses as the yen was unable to
break through key resistance. But the U.S. currency lost out
against most of its rivals, with traders taking bets on an
improving global economy by buying commodity-linked currencies.
The yen rallied to 88.01 yen, according to trading platform
EBS, its highest since late January.
"I suspect the market wants to see how far it can push the
new Japanese administration who have been sending mixed messages
on its attitude towards yen strength," said Daragh Maher, deputy
head of forex strategy at Calyon.
By 1106 GMT, the dollar had fallen 0.8 percent against the
yen to hit its lowest level since late January, before clawing
back to trade at 88.65 yen, unchanged on the day.
The yen's inability to appreciate beyond 88.00 yen, where
margin calls and options barriers lurked, had prompted a
recovery in the U.S. currency. A sustained fall under that level
was seen opening the door to a slide to 87.10 yen, a level hit
in January for the first time since mid-1995.
Sterling <GBPJPY=R> fell as much as 1 percent to 139.74 yen,
approaching a 5 1/2-month low. The euro <EURJPY=R> fell 0.8
percent to 129.59 yen, around its 200-day moving average.
Stop-loss sales were seen below 129 yen, traders said.
Japanese Finance Minister Hirohisa Fujii said on Wednesday
he was quietly watching currency moves for now, but added
authorities may take some steps if moves become abnormal.
He added expectations for low U.S. interest rates were
behind dollar weakness and recent moves stemmed from a falling
dollar rather than yen or euro strength.
Fujii was earlier quoted as saying in a interview with the
Wall Street Journal, published on Wednesday, that the current
level of the yen was consistent with acceptable market activity.
COMMODITY FX RALLIES
The euro was little changed on the day at $1.4695 <EUR=> but
stayed in sight of near two-week highs touched on Tuesday.
The dollar remained under selling pressure as risk sentiment
improved on the back of a 0.2 percent rise in U.S. stock
futures, while European shares <> bobbed in and out of
positive territory.
Strength in stocks, a rally in gold, which hit a record high
around $1,050 on Wednesday, and higher oil prices helped stoke
demand for currencies linked to commodity prices, including the
Australian, Canadian and New Zealand dollars.
The Australian dollar <AUD=D4> rose to $0.8951, its highest
since early August 2008, with an Australian interest rate hike
on Wenesday also providing support.
The New Zealand dollar <NZD=D4> also hit a 14-month peak of
$0.7399 ans the Canadian dollar touched a 1-year high of
C$1.0526 <CAD=>.
"We're seeing a continuation from yesterday's trade, when
the Aussie rose after the RBA rate rise," said Naeem Wahid,
currency strategist at Bank of Scotland Treasury in London.
"Growth-sensitive assets seem to getting a kick higher as
equities are rallying .. Commodity currencies like the kiwi and
CAD are also well bid."
The dollar index was flat at 76.375 <.DXY>, holding above a
13-month low of 75.827 hit last month.
Market players were looking to U.S. earnings results later
in the day, especially at aluminium producer Alcoa Inc, for
evidence of the strength of corporate recovery.
On Thursday, the European Central Bank and the Bank of
England will end their monthly policy meetings. Both are
expected to hold rates steady, and focus will be on whether they
offer any hints into the outlook for quantitative easing.
(Additional reporting by Tamawa Desai and Jamie McGeever,
editing by Nigel Stephenson)
