Yen extends slide as risk aversion ebbs

TOKYO, Aug 23 (Reuters) The yen extended a slide against the dollar and higher-yielding currencies on Thursday as gains in equities markets soothed worries of further risk aversion and unwinding of carry trades.

While traders were not ruling out the possibility of another flare-up in credit markets at some point, such concerns were receding for the time being.

''There are apparently moves among some overseas players that seem to be a slight rebuilding of yen carry trades,'' said Yuji Matsuura, joint general manager for Aozora Bank's forex and derivatives trading group.

''But it is not as if conditions have recovered completely,'' Matsuura said, adding that the dollar's gains could be blocked at around 116.50 yen in the near term.

The dollar rose 0.5 percent to 115.93 yen up from around 115.30 yen in late U.S. trading on Wednesday and pulling further away from a 14-month low of 111.60 yen struck on electronic trading platform EBS last Friday.

The euro climbed about 0.6 percent to 157.13 yen up from around 156.20 yen in late New York.

In the stock market, the Nikkei share average rose over 2.6 percent after the Dow Jones industrial average and the Standard&Poor's 500 Index both rose more than 1 percent on Wednesday.

The New Zealand dollar surged about 1.4 percent against the low-yielding yen and the Australian dollar climbed around 1.2 percent versus the Japanese currency.

High-yielding currencies such as the kiwi and Aussie often get a lift when carry trades are in play.

Carry trades involve selling low-yielding currencies like the yen to invest in higher-yielding currencies and assets.

BOJ WATCH The Bank of Japan is widely expected to keep interest rates steady at 0.50 percent at its two-day policy meeting ending on Thursday, and the focus will be on remarks by BOJ Governor Toshihiko Fukui at a news conference afterwards.

The yen could gain support if Fukui says anything that points to the possibility of a rate rise in September, although the impact would likely prove fleeting, traders said.

''The focus is more on equities than the BOJ and on the Dow more than the Nikkei,'' said a trader at a Japanese bank.

''If equities stabilise it becomes easier to build risky positions,'' he said.

Dollar/yen and cross/yen extended gains after S&P 500 index futures jumped after the U.S. stock market close on Wednesday.

The jump in U.S. equities futures was triggered by news that Bank of America Corp would invest TOKYO, Aug 23 (Reuters) The yen extended a slide against the dollar and higher-yielding currencies on Thursday as gains in equities markets soothed worries of further risk aversion and unwinding of carry trades.

While traders were not ruling out the possibility of another flare-up in credit markets at some point, such concerns were receding for the time being.

''There are apparently moves among some overseas players that seem to be a slight rebuilding of yen carry trades,'' said Yuji Matsuura, joint general manager for Aozora Bank's forex and derivatives trading group.

''But it is not as if conditions have recovered completely,'' Matsuura said, adding that the dollar's gains could be blocked at around 116.50 yen in the near term.

The dollar rose 0.5 percent to 115.93 yen up from around 115.30 yen in late U.S. trading on Wednesday and pulling further away from a 14-month low of 111.60 yen struck on electronic trading platform EBS last Friday.

The euro climbed about 0.6 percent to 157.13 yen up from around 156.20 yen in late New York.

In the stock market, the Nikkei share average rose over 2.6 percent after the Dow Jones industrial average and the Standard&Poor's 500 Index both rose more than 1 percent on Wednesday.

The New Zealand dollar surged about 1.4 percent against the low-yielding yen and the Australian dollar climbed around 1.2 percent versus the Japanese currency.

High-yielding currencies such as the kiwi and Aussie often get a lift when carry trades are in play.

Carry trades involve selling low-yielding currencies like the yen to invest in higher-yielding currencies and assets.

BOJ WATCH The Bank of Japan is widely expected to keep interest rates steady at 0.50 percent at its two-day policy meeting ending on Thursday, and the focus will be on remarks by BOJ Governor Toshihiko Fukui at a news conference afterwards.

The yen could gain support if Fukui says anything that points to the possibility of a rate rise in September, although the impact would likely prove fleeting, traders said.

''The focus is more on equities than the BOJ and on the Dow more than the Nikkei,'' said a trader at a Japanese bank.

''If equities stabilise it becomes easier to build risky positions,'' he said.

Dollar/yen and cross/yen extended gains after S&P 500 index futures jumped after the U.S. stock market close on Wednesday.

The jump in U.S. equities futures was triggered by news that Bank of America Corp would invest $2 billion in Countrywide Financial Corp The euro gained support after the European Central Bank reminded markets on Wednesday of its Aug. 2 monetary policy stance, a move that some analysts saw as signalling its intention to raise rates in September despite market turbulence.

The statement came as part of a surprise announcement that the ECB would auction 40 billion euros in three-month financing to money markets on Thursday, on top of regular funds.

REUTERS CS BST0702 billion in Countrywide Financial Corp The euro gained support after the European Central Bank reminded markets on Wednesday of its Aug. 2 monetary policy stance, a move that some analysts saw as signalling its intention to raise rates in September despite market turbulence.

The statement came as part of a surprise announcement that the ECB would auction 40 billion euros in three-month financing to money markets on Thursday, on top of regular funds.

REUTERS CS BST0702