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Yen and euro sink as China and Japan ease global nerves

Tomohiro Ohsumi | Bloomberg | Getty Images

The euro and yen weakened on Monday as a warning from Japan's prime minister about excessively volatile currency markets and the biggest one-day gain for China's yuan in more than a decade helped settle financial nerves.

A stock market sell-off since the start of February has driven a wave of capital to seek the traditional safety of Japan, driving the yen 7 percent higher and prompting speculation Tokyo would intervene against the currency.

Japanese Prime Minister Shinzo Abe told parliament that "excessive currency volatility is undesirable" and said appropriate action would be taken in the exchange rate market as needed.

Abe also said he hoped the Group of 20 finance leaders would take appropriate measures to address global economic problems when they meet in Shanghai next week.

Chinese central bank chief Zhou Xiaochuan also played down the benefit of capital controls and said it was quite normal for currency reserves to fall as well as rise. That helped drive the biggest rise in onshore rates for the yuan since China dropped an official peg to the dollar in 2005.

The yen and the euro a slightly shakier choice as a safe haven for investors' money in the past week - both fell around half a percent against the dollar.

The Australian and New Zealand dollars, both commodities-linked currencies dependent on optimism over global growth, each gained around half a percent against the dollar.

"This morning, it's all 'risk on'," said Kit Juckes, a strategist with Societe Generale in London.

Onshore rates for the yuan, whose fall since December has been one of the big elements unsettling markets, gained 1.25 percent from levels seen in its last trading before the Lunar New Year holiday began more than a week ago.

That broadly reflected a weakening of the dollar against its developed world peers over that period, but not its moves against other emerging Asian currencies. Offshore rates for the yuan rose 0.2 percent.

The mood in Europe remains extremely fragile. Many analysts pointed to grim Japanese growth data and China's January trade performance, which was worse than expected.

"China has shown its mettle with a firmer fix but am I impressed? Not overly," said Tobias Davis, head of corporate treasury sales at Western Union in London.

"It's a well-received relief rally in risk sentiment which is well overdue. But the China data was terrible and Japan's woes continue."