* Euro rises vs dollar and yen, lifted by short-covering
* Trade choppy, dealers say volumes thin, exaggerating moves
* Market trying to assess how far dollar correction can go
By Charlotte Cooper
TOKYO, June 17 (Reuters) - The euro rose on Wednesday as
investors bought it back after steep falls against the dollar and
yen this week, but the market struggled for clear direction as it
tried to decide if a dollar recovery had run its course.
The dollar has fallen against major currencies such as the
euro and Australian dollar this year, with investors unwinding
safe-haven dollar positions as the worst of the economic crisis
faded and as questions arose over its suitability as the world's
reserve currency.
Both it and the yen have clawed back some lost ground this
month as investors have paused to assess whether rallies in
riskier assets including shares have got ahead of themselves.
But with a question over its reserve currency status
resurfacing on Tuesday, analysts said the market was not sure
which direction to head.
"The market seems to be bewildered, facing lots of different
factors," said Kazuyuki Kato, treasury department manager at
Mizuho Trust and Banking.
"And investors are shying away from taking risks after stocks
entered a correction phase as optimism for the economy had gone
too far," he said.
The euro edged up 0.2 percent from late U.S. levels to
$1.3860 <EUR=> after earlier veering towards a one-month low of
$1.3747 set on Tuesday. It has gained 11 percent on the dollar
since March but is below its 2009 high of $1.4339 set this month.
The greenback fell on Tuesday after Russia suggested ahead of
a meeting with leaders of Brazil, India and China there was a
need for a reserve currency other than the dollar.
In the event, the four leaders avoided the reserve status
issue in their statement after the summit, causing the dollar
selling to peter out. []
"At the end there was no strong comment to play down the role
of the dollar," said Masafumi Yamamoto, head of FX strategy Japan
at Royal Bank of Scotland in Tokyo.
Asian stock markets were largely negative on Wednesday, with
investors doubting how fast the U.S. recession is easing after a
mixed set of economic indicators.
"The global financial markets are in correction mode,"
Yamamoto said.
Traders and analysts said currency flows seemed to be driven
by short-term players, making the market choppy, but some saw the
dollar and the yen as having room to strengthen a bit more.
"The dollar can continue a bit higher but overall the
medium-term trend lower is still intact," a senior trader at a
European bank in Hong Kong said.
The yen reversed early gains after driving the dollar to a
two-week low below 96.00 yen and the Australian dollar to a
three-week low below 76.00 yen.
The dollar rose 0.2 percent to 96.60 <JPY=> and the Aussie
dollar climbed 0.5 percent to 76.80 yen <AUDJPY=R>.
Traders said talk that Japanese investors may repatriate
funds from euro zone bond redemptions had helped push the euro
down versus the yen this week, with 15.6 billion euros ($21.6
billion) of redemptions and 2.1 billion euros of coupon payments
falling due.
The euro has fallen 2.5 percent against the yen since Friday
but short-covering pushed it up 0.6 percent to 134.16 yen
<EURJPY=R>.
Traders also cautioned about possible yen-selling related to
Japanese investment trusts, which tend to attract funds in June
and July when people receive bonuses.
A batch of trusts investing overseas are expected to be
launched towards the end of this month, although traders
questioned how much will flow into them as many people face bonus
cuts this year.
(Additional reporting by Kaori Kaneko; Editing by Joseph
Radford)
