NEW YORK (Reuters) - The dollar scaled four-month peaks against the yen on Wednesday, as news about China's latest stimulus package and data suggesting its economy is beginning to recover revived investors' risk appetite.
The news fueled a rally on Wall Street, lifting it from 12-year lows hit on Monday, and prompted selling in the greenback versus the euro and other higher-yielding currencies such as the Australian and New Zealand dollars.
"The biggest news today came out of China and that seems to have a bigger impact on risk appetite than market activity," said Robert Blake, senior currency strategist, at State Street Global Markets in Boston.
"The news of the stimulus package is supporting riskier currencies and generating an unwind in the safe-havens that is now more or less limited to the dollar," he added.
China on Wednesday said it would increase infrastructure and manufacturing spending, raising hopes of stimulus for the global economy. In addition, an important measure of Chinese manufacturing improved in February for a third straight month.
The report on China overshadowed data showing another slide in U.S. private sector employment for February.
In early afternoon New York trading, the dollar rose to 99.29 yen, up 1.0 percent on the day. Earlier, it climbed to 99.49 yen, the highest level since November 5, according to electronic trading platform EBS.
The yen was also weighed down by concerns about Japan's economy, which is mired in recession. That along with zero interest yields have spurred an outflow of funds from Japanese investors themselves.
BOJ CONCERNS; UNCHANGED GLOBAL BACKDROP
Bank of Japan board member Miyako Suda echoed those worries on Wednesday, saying it was difficult to judge whether the Japanese economy had hit bottom and voiced concerns over tumbling share prices.
The euro was trading at $1.2616, up 0.4 percent on the day after earlier hitting a three-month trough below $1.25. Sterling rose 0.4 percent to $1.4117 after dipping below $1.40.
"Improved equity markets have helped sentiment today and people are taking some profits" after the dollar's recent rally brought it near or beyond important psychological levels against a number of major currencies, said David Watt, senior currency strategist at RBC Capital Markets in Toronto.
The global backdrop, though, hasn't changed, and "financial markets are still a mess, credit markets are still tight, and we are still a long way from recovery," Watt said.
Anxiety about the U.S. and world economies has supported the dollar in recent months as investors cut exposure to stocks and other currencies and sought safety in the greenback, which benefits from its role as the world's reserve currency.
Also on Wednesday, data showed Australia's economy shrank in the fourth quarter for the first time in eight years, although hopes of increased Chinese spending helped the Australian dollar recover to US$0.6484, up 1.5 percent. Continued...
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