Euro holds firm after China rate hike

December 27, 2010

, TOKYO, Dec 27 – The euro held firm against other currencies in Asia on Monday with investors ready to take risks after Japanese and Chinese shares rose despite Beijing\’s weekend rate hike, dealers said.

The euro bought 1.3117 dollars in Tokyo afternoon trade after falling below 1.31 earlier in the day from 1.3118 dollars in New York late Friday.

The European single currency also changed hands at 108.62 yen, compared with 108.70 yen in New York. The dollar traded at 82.79 yen, little changed from 82.82 yen.

Many players in the currency market had expected Asian share prices to fall after China hiked rates Saturday — a move that often raises investor concerns about dampening global economic growth.

But contrary to market expectations, Japan\’s benchmark Nikkei index on the Tokyo Stock Exchange closed up 0.75 percent, and China\’s Shanghai Composite Index rose 0.38 percent.

These market moves prompted forex investors to buy back risk-sensitive euros sold earlier in the day, dealers said.

"The market is still risk-on," Tsutomu Soma, a senior dealer at Okasan Securities, told Dow Jones Newswires.

Dealers said financial markets had factored in the Chinese rate rise.

"Given China\’s high inflation rate, everybody knew it was coming," said Jun Kato, a senior dealer at Shinkin Asset Management.

China\’s central bank on Saturday raised interest rates for the second time in less than three months as authorities ramp up efforts to curb borrowing, rein in property prices and tame inflation.

The People\’s Bank of China said in a one-line statement that it would raise the one-year lending and deposit rates by 25 basis points each. The move took the rates to 5.81 percent and 2.75 percent respectively from Sunday.

The dollar was mixed against other Asian currencies.

It fell to 1.2979 Singapore dollars from 1.3022 on Friday and to 29.50 Taiwan dollars from 29.82.

The greenback firmed to 9,038.00 Indonesian rupiah from 9,030.00 and to 30.17 Thai baht from 30.14, while holding steady at 44.03 Philippine pesos.

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