The dollar hit a three-month high against the yen, boosting Japanese stocks, and a three-week peak against the euro on Monday before giving up some of last week's big gains. European shares were boosted by takeover talk and euro zone bonds, initially down after a sharp sell-off in U.S. Treasuries on Friday, regained some lost ground as the euro recovered slightly. After hitting a three-month high against the yen of 109.40, the dollar tumbled and was last down 0.6 percent on the day at 108.43 yen. Against the euro , the greenback was down 0.21 percent at $1.2554, having hit its highest in nearly three weeks at around $1.2450.
After months of heavy selling, the dollar rocketed about two percent against major currencies on Friday, triggered by news Japan had tightened security as more troops left for Iraq. But traders said the security news was merely a catalyst for a long overdue adjustment. "The question now is whether the market has the energy to take dollar/yen up as far as, say, 110. That will be the key to other currencies as well," said Shahab Jalinoos, senior currency strategist at ABN AMRO. The weaker yen boosted shares in Japanese exporters and helped push the main Tokyo stock index to a four-week high. The Nikkei average <.N225> closed 1.38 percent higher and the broader TOPIX <.TOPX> index rose 0.87 percent. "Investors are returning due to relief over currencies," said Kazuyuki Naito, general manager of equities sales and trading at UFJ Tsubasa Securities.
TAKEOVER TALK BOOSTS EUROPEAN SHARES
European shares edged higher, boosted by takeover speculation, with bank Standard Chartered and British mobile telecoms group mm02 rumoured to be possible bid targets. Shares in Anglo-Asian Standard Chartered rose more than two percent on talk it is a potential takeover target after the death of its largest single shareholder, Singapore-born Khoo Teck Puat. mm02 rose more than 20 percent after Dutch telecoms group KPN said on Sunday it would not rule out a hostile bid for the British group. The FTSE Eurotop 300 index <.FTEU3> was up 0.32 percent, trading around 19-month highs, and the narrower DJ Euro STOXX 50 index <.STOXX50E> was up 0.5 percent. New York stocks ended lower on Friday after disappointing earnings from computer company Hewlett-Packard and a report showing a jump in U.S. consumer prices in January. The Dow Jones Industrial average <.DJI> fell 0.43 percent and the technology-focused Nasdaq <.IXIC> lost 0.39 percent.
Some analysts say U.S. stocks are likely to drift lower this week as an 11-month rally shows signs of running out of steam. However, stock index futures were higher in Europe on Monday, indicating Wall Street would open higher. A sharp sell-off in U.S. Treasuries on Friday, following upbeat comments on the job market from Federal Reserve officials, hit some euro-zone government bonds on Monday and pushed yields to 1-1/2-week highs. The benchmark 10-year Bund yield was up 0.4 basis points at 4.15 percent, having hit a 1-1/2 week peak at around 4.17 percent. The two-year Schatz yield , however, was down 1.2 basis points at 2.36 percent, supported by expectations the European Central Bank will keep interest rates low for some time. Gold edged higher in Europe as the dollar slipped. Spot gold was last at $399.40/400.10 an ounce, compared with $397.25/398.00 at Friday's New York close.///