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FOREX-Dollar broadly flat; yen ascendant

Published 07/08/2009, 04:00 AM
Updated 07/08/2009, 04:08 AM
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* Dollar index flat; dlr down 0.5 percent vs yen at 94.41 yen

* Yen hits 7-week highs vs dollar and euro

* Market awaits start of U.S. Q2 corporate earnings season

* G8 draft statement: risks remain to economic stability

(Releads, adds quotes, changes dateline prvs TOKYO)

By Tamawa Desai

LONDON, July 8 (Reuters) - The dollar was flat while the yen climbed on Wednesday as uncertainty about the global economic outlook reined in investor risk-taking.

Recovery doubts have helped pull currencies such as the Australian dollar, sterling and the euro well off peaks hit in June, and the dollar and the yen have risen in the past few weeks.

The yen hit its highest levels in around seven weeks against the dollar and euro on Wednesday, as short-term players unwound risk trades ahead of the start of second quarter U.S. earnings which kicks off with Alcoa Inc after markets close.

"The sharp fall in the cross yen pairs is reflecting speculators closing long positions in risk assets," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.

"There is very little clarity on the global outlook, and there is uncertainty over the earnings season."

The euro fell to as low as 130.43 yen, its lowest since late May. At 0731 GMT, it was down 0.8 percent at 130.93 yen.

The dollar hit a six-week low of 94.09 yen, according to Reuters data. Sterling also reached its lowest in more than a month against the yen of around 151.01 yen.

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The dollar index, a gauge of its performance against six major currencies, was steady at 80.77

YEN CROSSES

One broker specialising in forex margin trading said Japanese retail traders were selling to unwind long sterling positions in a general sell-off of riskier currencies against the yen.

Others said Japanese retail margin activity was focused on buying yen crosses on dips.

They also noted net short-yen positions have surged to levels seen before the collapse of Lehman Brothers last September, indicating cross yen pairs may see a pick-up after the current correction.

Sterling hit a one-month low against the dollar of around $1.6048 after weak industrial output data the previous day reinforced doubts about a UK recovery.

Sterling's fall came ahead of a Bank of England policy decision on Thursday, where it is expected to keep interest rates at a record low of 0.5 percent and seen expanding its 125 billion pound quantitative easing programme.

The euro dipped 0.2 percent to $1.3892.

Draft statements being prepared for issue at meetings of G8 leaders and G8 leaders plus G5 emerging market economies have no direct reference to currency or foreign exchange, according to the draft texts seen by Reuters.

The texts are being drafted for publication at meetings on Wednesday of leaders of the G8 economic powers and Thursday of those leaders plus G5 leaders from countries such as China, India, Brazil and Mexico.

Chinese President Hu Jintao is flying back to Beijing following rioting in a northwestern region of China and will miss the summit.

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China had been the main voice calling for a shift away from the U.S. dollar as the world's main reserve currency. (Additional reporting by Masayuki Kitano in Tokyo, editing by Mike Peacock)

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