Euro rebounds after plunge on Cyprus fears

Tokyo - The euro rebounded in Asian trade on Tuesday after plunging to multi-month lows on fears that a 10-billion-euro bailout deal for Cyprus could become a template for future regional rescue packages.

There are also growing worries that Cyprus still faces possible panic when banks reopen, with lenders in other weak eurozone economies facing a similarly dire scenario.

Nicosia reversed a decision to reopen some banks on Tuesday after world markets took fright at the implications of the island's bailout, which calls for an unpopular levy on big bank deposits.

The euro's initial gains in Asia on Monday after the deal was announced were later erased when Eurogroup head Jeroen Dijsselbloem said the Cyprus model of penalising bondholders, shareholders and uninsured deposit holders in bank failures could be applied elsewhere on the troubled continent.

“One small step forward, two (larger) steps back. That is how markets (FX in particular) have interpreted the 11th hour deal to save the Cypriot banking system from collapse and secure Cyprus' continued presence inside the eurozone,” National Australia Bank said in a note.

Dijsselbloem's comments “greatly exacerbated the risk of deposit flight”, it added.

However, the embattled euro bought $1.2866 and 121.21 yen in afternoon Tokyo trade, strengthening from $1.2853 and 120.96 yen late Monday in New York, and well up from the $1.2830 it hit in London, its lowest level since November.

The dollar strengthened to 94.26 yen in Tokyo from 94.10 yen, as investors look to a Bank of Japan meeting next week.

It will be the first policy meeting for a new management team at Japan's central bank, which has pledged to tackle the country's long-running deflation with aggressive monetary easing.

But Finance Minister Taro Aso on Tuesday acknowledged that monetary policy alone would not reverse years of falling prices in Japan, which have crimped private spending and corporate investment.

In January the BoJ announced an unlimited easing programme and set a two-percent inflation target, seen as more explicit than a previous “goal”.

“I don't think (the target) can be achieved easily and I certainly don't think the Bank of Japan can achieve the goal by itself,” Aso told a press briefing according to Dow Jones Newswires.

US Federal Reserve Chairman Ben Bernanke on Monday rejected worries that the world's troubled large economies were cutting their currency values and hurting smaller, healthier nations in the process.

Tokyo has faced criticism, particularly in Europe, that it is using monetary policy to push down the value of the yen to help Japanese exporters.

The dollar was mixed against other currencies Tuesday, weakening to 9,750 Indonesian rupiah from 9,755 rupiah a day earlier, to 1,105 South Korean won from 1,117 won, and to Sg$1.2410 from Sg$1.2494.

The greenback strengthened to 29.36 Thai baht from 29.23 baht, to 40.95 Philippine pesos from 40.83 pesos, and to 54.33 Indian rupees from 54.28 rupees. It was flat at Tw$29.84.

The Australian dollar firmed to $1.0462 from $1.0425 while the Chinese yuan fetched 15.16 yen against 15.25 yen. - Sapa-AFP