RPT-FOREX-Yen falls, Aussie surges as bank rescues take shape

RPT-FOREX-Yen falls, Aussie surges as bank rescues take shape
Sun Oct 12, 2008 9:10pm EDT
(Repeats to additional subscribers)
By Eric Burroughs
TOKYO, Oct 13 (Reuters) - The yen slid against higher-yielding currencies on Monday while the Australian dollar surged as leaders from Europe to the United States rushed out plans to shore up banks and stem the panic gripping investors.
After stock markets around the world suffered their worst ever weekly losses last week, leaders from Group of Seven rich nations set out a plan of action to stem the crisis and European leaders agreed to inject public funds into the banking system if necessary. [ID:nLC713950]
The United States said it would take stakes in banks in a first such move since the Great Depression, while Britain was set to pump more than 40 billion pounds into its four biggest banks. [ID:nCRISIS] The flurry of initiatives to stem the worst financial crisis since the 1930s increased investor appetite for risk, though analysts were uncertain whether the improving mood would last very long.
"What is clear is that global policymakers are not going to stand idly by as the global financial system implodes," said Sue Trinh, senior currency strategist at RBC Capital Markets, in a note to clients.
In Asia, Australian and South Korean equities jumped 3-6 percent and U.S. stock futures SPc1 also rose, pointing to a sharp rally.
Reviving the lending between banks, the lifeblood of the global financial system, was at the heart of the rescue plans after the default of Lehman Brothers caused many financial institutions to stop dealing with each other.
Trading activity was subdued due to a national holiday in Japan and with U.S. bond markets closed for the Columbus Day holiday. U.S. stock markets will be open, however.
Weeks of severe market volatility have also made investors and hedge funds shy away from trading, making day-to-day moves even more extreme than usual.
The dollar slipped, giving up some of its gains scored in the past few weeks as U.S. investors repatriated funds and as banks around the world scrambled to acquire the dollar funding they needed on the open market.
The euro rose 1.2 percent from late U.S. trade to $1.3573 , recovering from a 1-½ year low of $1.3258 struck on Friday.
The single currency jumped 1.4 percent to 136.92 yen , up from a three-year low of 132.15 hit on Friday as well.
The dollar was little changed at 100.70 yen with most of the big moves concentrated in currencies that have suffered the most during the broad market sell-off of the past few weeks.
The Australian dollar gained 5.4 percent to $0.6774 after hitting a 5-½ year low of $0.6330 on Friday and plunging about 20 percent in the past two weeks.
Against the yen, the Aussie was up 5.4 percent to 68.20 yen after having collapsed more than 22 percent in the past two weeks to a six-year low near 63 yen. (Editing by Tomasz Janowski)