LONDON (Reuters) - Calls by leading industrial nations for flexibility in exchange rate policies continued to echo across financial markets on Wednesday, but with some signs that the fury of the past few days was running out of steam.
The dollar weakened against both the euro and Japanese yen, but was above its recent lows. European debt yields dropped after a two-day rally.
Shares rose in Europe and eked out tiny gains in Japan, where a burst of strength in the yen had battered equities earlier in the weak.
Key market mover, however, remained the weekend comment from the Group of Seven industrial nations that it wanted to see flexible currency regimes.
It has been widely interpreted as a call for Japan and China not to fight to keep their currencies from appreciating, which is seen as hindering global recovery.
Following the comment, the dollar plunged against major currencies, Japanese shares sank on worries over exports and European bond prices leapt as many Asian investors moved out of U.S. assets.
On Wednesday, however, markets appeared to be settling down, although keen attention was being paid to the dollar. "The forex market is going to be the chief determinant of sentiment with stock markets in the background," said one London bond trader.
CORRECTIVE MOOD
The dollar was down against both the euro and yen from late Tuesday levels, but slightly above its post-G7 lows. "There is a corrective mood on the market," said Shahab Jalinoos, senior currency strategist at ABN Amro in London.
The yen rose as high as 111.75 per dollar on Wednesday, a gain of around half a percent overnight, but below three-year highs of 110.85 set on Tuesday.
The euro was up a quarter of a percent against the dollar at $1.1473, compared with an eight-week high of $1.1529 on Tuesday.
Investors were keen for any signs of Bank of Japan plans to come into the market to keep the yen from appreciating too much despite the G7 call. Top government spokesman Yasuo Fukuda said Japan would act as needed on the volatile yen, calling its rise this week harsh.
On debt markets, European government bond yields ticked higher. The interest rate-sensitive two-year Schatz yield was 2.6 basis points higher at 2.37 percent. The benchmark 10-year Bund yield was up 2.7 basis points at 4.13 percent.
Yields hovered near two-month lows on Tuesday after the dollar skidded.
European shares were breaking a three-day losing streak, gaining after a solid Wall Street close. Both the FTSE Eurotop 300 index and the narrower DJ Euro Stoxx 50 index were up 0.59 percent.
Earlier, Japan's Nikkei stock average closed up slightly as investors shifted their focus to defensive issues after the week's sudden jump in the yen stoked jitters over auto and other exporters.
The Nikkei average closed up 0.26 percent at 10,502.29 after plunging 4.24 percent on Monday, its biggest fall in two years. The market was closed for a holiday on Tuesday.
The capital-weighted TOPIX index was up a meager 0.04 percent at 1,043.66 after hovering in negative territory most of the day.
The dollar weakened against both the euro and Japanese yen, but was above its recent lows. European debt yields dropped after a two-day rally.
Shares rose in Europe and eked out tiny gains in Japan, where a burst of strength in the yen had battered equities earlier in the weak.
Key market mover, however, remained the weekend comment from the Group of Seven industrial nations that it wanted to see flexible currency regimes.
It has been widely interpreted as a call for Japan and China not to fight to keep their currencies from appreciating, which is seen as hindering global recovery.
Following the comment, the dollar plunged against major currencies, Japanese shares sank on worries over exports and European bond prices leapt as many Asian investors moved out of U.S. assets.
On Wednesday, however, markets appeared to be settling down, although keen attention was being paid to the dollar. "The forex market is going to be the chief determinant of sentiment with stock markets in the background," said one London bond trader.
CORRECTIVE MOOD
The dollar was down against both the euro and yen from late Tuesday levels, but slightly above its post-G7 lows. "There is a corrective mood on the market," said Shahab Jalinoos, senior currency strategist at ABN Amro in London.
The yen rose as high as 111.75 per dollar on Wednesday, a gain of around half a percent overnight, but below three-year highs of 110.85 set on Tuesday.
The euro was up a quarter of a percent against the dollar at $1.1473, compared with an eight-week high of $1.1529 on Tuesday.
Investors were keen for any signs of Bank of Japan plans to come into the market to keep the yen from appreciating too much despite the G7 call. Top government spokesman Yasuo Fukuda said Japan would act as needed on the volatile yen, calling its rise this week harsh.
On debt markets, European government bond yields ticked higher. The interest rate-sensitive two-year Schatz yield was 2.6 basis points higher at 2.37 percent. The benchmark 10-year Bund yield was up 2.7 basis points at 4.13 percent.
Yields hovered near two-month lows on Tuesday after the dollar skidded.
European shares were breaking a three-day losing streak, gaining after a solid Wall Street close. Both the FTSE Eurotop 300 index and the narrower DJ Euro Stoxx 50 index were up 0.59 percent.
Earlier, Japan's Nikkei stock average closed up slightly as investors shifted their focus to defensive issues after the week's sudden jump in the yen stoked jitters over auto and other exporters.
The Nikkei average closed up 0.26 percent at 10,502.29 after plunging 4.24 percent on Monday, its biggest fall in two years. The market was closed for a holiday on Tuesday.
The capital-weighted TOPIX index was up a meager 0.04 percent at 1,043.66 after hovering in negative territory most of the day.
