TOKYO - The dollar was slightly easier in late Tokyo trading on Tuesday after a brief, mild rise prompted by a fall in Tokyo shares to 18-year lows that raised concern about the fragility of Japan's economic recovery. The stock drop led to dollar sales by traders worried about a possible spill-over effect on European and U.S. equity markets, offsetting early gains in the greenback versus the yen. As of 1:35 a.m. EDT, the Nikkei stock average was down 2.73 percent at 9,261.99, its lowest since November 1983.
"I would assume that the Nikkei's tumble was not necessarily caused by overseas investors, thus it should not have much implication for the exchange rate," said Junya Tanase, global markets officer, forex research, at Chase Manhattan Bank. A spot dealer at a major Japanese bank said: "The market isn't very sensitive to the Nikkei." "Speculators were buying and selling based on its movements, but currency levels were pretty much within recent ranges," the dealer said.
A bigger worry about the Nikkei's fall was that it could also hit the U.S. equity market and possibly trigger another round of dollar-selling. "I think there is a very high possibility of this (a fall in U.S. stocks) happening," said Noriyuki Kato, head of foreign exchange at ING in Tokyo. "It is very worrisome."
As of 1:35 a.m. EDT, the dollar stood at 118.05/10 yen against 118.18 in late Europe. The U.S. financial markets were closed on Monday for the Labor Day holiday. The euro held steady at 98.40/45 cents, against 98.37 in late London. The single currency was at 116.15/20 yen compared with 116.25. The euro's major resistance lies at 98.90 cents, and many believe the single currency will try for parity again should it breach that level.
However, traders said the euro appears to lack enough momentum for the moment to rise decisively despite persistent euro purchases in crosses, albeit small lots, such as for the Swedish crown and the yen.//www.money.iwon.com