SINGAPORE, Sept 19 - The dollar recovered some ground on Friday after hitting a two-and-half year low against the yen, while Asian stocks edged higher after a strong showing by U.S. equities. The dollar's fall to as low as 114.70 yen in New York trading led traders to think Japan was taking a more lenient attitude on intervention, which it had seemed to employ to defend the 115 level. Dealers had speculated this week that Japan would soften its stance on currency intervention to avoid criticism at the weekend's Group of Seven meeting in Dubai, but were still surprised at the lack of action. "We are in a serious situation," said a Japanese bank dealer. "It was something I totally did not expect. What happened overnight simply underscored what the market had predicted."
At 0220 GMT, the dollar was at 115.33 yen . The euro was moving sideways against the dollar at $1.1256 and was quoted a touch stronger at 129.80 yen . Japan's Nikkei average rose to a fresh 15-month high, led by banks such as Mizuho Holdings <8411.T> and retailers. The market's banking sub-index <.IBNKS.T> was up 2.29 percent. The latest round of strong buying of banks helped the market overcome a dip in Honda Motor Co Ltd <7267.T> and some other automakers after the dollar's fall threatened to hurt exporters.
NEAR THREE-YEAR HIGH
The Nikkei <.N225> was up 0.42 percent at 11,080.01 at the midday break. Other Asian stock markets were also ahead. MSCI's broadest index of regional stock markets outside of Japan <.MSCIAPJ> was up 0.42 percent, near a three-year high in dollar terms. On Wall Street, encouraging economic data pushed the Dow Jones industrials <.DJI> up 1.19 percent, the S&P 500 <.SPX> up 1.33 percent, and the Nasdaq <.IXIC> up 1.4 percent. Hong Kong's Hang Seng Index <.HSI>, Taiwan's TAIEX <.TWII> and Singapore's Straits Times Index <.STI> were all a little over 0.6 percent higher. Retailers were in fashion, with Hong Kong's Esprit Holdings Ltd <0330.HK> the top gainer on the Hang Seng after posting better than expected results on Thursday. Australia's S&P ASX 200 <.AXJO> gained 0.43 percent on the back of good results from the country's biggest retailer, Coles Meyer .
South Korean shares were slightly higher, supported by gains in brokerage shares such as Samsung Securities Co <16360.KS> and Hyundai Securities Co <03450.KS> following rises in their U.S. peers. NYMEX crude oil futures inched up as Hurricane Isabel slammed the U.S. east coast and traders tracked its possible impact on U.S. refinery operations. Front-month October crude was $27.21 per barrel at 0107 GMT, up four cents. Gold was lower with volumes expected to be limited ahead of the G7 meeting. Spot gold was trading at $375.70.
DOLLAR DOWNSIDE?
Kenji Kobayashi, manager of the foreign exchange and treasury division at Bank of Tokyo-Mitsubishi, said the dollar was more likely to recover than weaken further. "Looking at the market's movement, the yen could continue to strengthen because foreign investors still have enough money to buy the yen," Kobayashi said. "But once the market sees the outcome of the weekend's G7 meeting, the dollar will be bought towards the year-end thanks to a strong U.S. economy. I think the yen's strength could stop around 115 yen," he added. Japanese government bond (JGB) prices were down slightly on the stock market gains, but traders said the bond market had started factoring in the possibility of the Nikkei rising to 12,000. The firm yen was also underpinning bonds.
The yield on the benchmark 253rd 10-year cash bond <0#JPTSY=JBTC> was up one basis point at 1.385 percent, while the key December futures contract <0#2JGB:> ended the morning session down 0.11 point at 137.08.//