FOREX TRADE

TOKYO (Dow Jones)--The dollar and euro fell to seven-week lows against the yen in Asia Wednesday as regional share markets slid, prompting players to take refuge in the safe-haven Japanese unit.

Short-term investors also got on board to sell other higher-yielding currencies such as the Australian dollar and British pound, which they consider riskier assets, for the yen, dealers said.

The selling of these currencies also pressured down the dollar against the yen, with the U.S. unit dropping to Y94.15, its lowest level since May 22. The euro also dropped to its lowest level since that day, falling to Y130.96.

Dealers said the falls were tracking drops in Asian share markets, led by Japan's benchmark Nikkei 225 Stock Average, which was down 2.4% in early afternoon trade.

"This is stock driven," said Yuji Saito, head of the foreign exchange group at Societe Generale. If share markets continue sliding, the dollar could later in the day fall to Y93.85, while the euro could drop to Y130.00, "after it already fell through earlier support at 131.20," Saito said.

Further falls in oil, with Nymex crude futures dropping to $62.31 a barrel, were also hurting higher-yielding, commodity-linked units like the Australian dollar against the yen, dealers said. The Aussie fell to Y73.94, its lowest since May 28.

"This is not just oil, but commodities like metals that are also falling," prompting more skepticism over a near-term global economic recovery, said Satoshi Tate, senior vice president of foreign exchange at Mizuho Corporate Bank.

Whether the yen continues to gain at other currencies expense in the coming weeks depends on how long it takes to close "the gap between recent excessive (global economic) optimism and reality," said Mizuho's Tate.

Meanwhile, the news that Chinese President Hu Jintao had scrapped his plan to attend the summit of the Group of Eight industrial nations and emerging economies and was returning early from Italy due to continued unrest in China's Xinjiang Uighur Autonomous Region had no direct effect on the currency markets, dealers said.

Most players already expected that the G8 will not formally take up proposals, some of which have come from China, for debate on creation of a new global reserve currency to replace the dollar, they said.

But the worsening situation in western China, highlighted by Hu's sudden cancellation, "was a negative factor for the Chinese share markets earlier," said Mizuho's Tate. If the unrest gets worse, dragging Chinese share prices lower, that could exacerbate the growing pessimism over the global economy, which may bolster yen strength, he added.

Interbank Foreign Exchange Rates At 00:50 EDT / 0450 GMT
Latest Previous %Chg Daily Daily %Chg
Dollar Rates 2150 GMT High Low 12/31
USD/JPY Yen 94.20-25 94.81-86 -0.64 94.86 94.17 +3.97
EUR/USD Euro 1.3917-18 1.3926-30 -0.06 1.3921 1.3882 -0.44
GBP/USD Sterling 1.6093-97 1.6141-45 -0.30 1.6132 1.6062 +10.03
USD/CHF Swiss Franc 1.0888-94 1.0882-88 +0.06 1.0914 1.0887 +2.05
USD/CAD Canadian Dlr 1.1627-31 1.1654-59 -0.23 1.1682 1.1629 -4.42
AUD/USD Australian Dlr 0.7863-65 0.7894-99 -0.39 0.7897 0.7853 +11.17
NZD/USD New Zealand Dlr 0.6274-84 0.6291-98 -0.27 0.6300 0.6269 +7.52
EUR/JPY Yen 131.11-15 132.04-09 -0.70 132.01 130.97 +3.53