TOKYO (Reuters) - The yen fell to its lowest in five months against the euro on Monday and dropped more than 1 percent against higher-yielding currencies as investors grew bolder on U.S. plans to tackle financial system problems.
Stock markets around Asia rose in anticipation of plans by Treasury Secretary Timothy Geithner to purge U.S. banks of "toxic" assets, leaving the yen, which had been a gainer last year in times of financial stress, at the mercy of the Australian and New Zealand dollars.
Geithner is set to speak at 1245 GMT but a U.S. official gave details of the plan beforehand, saying the government would put in $75 billion to $100 billion from its bailout fund to partner with private investors and buy troubled assets at the heart of the financial crisis.
"It's naturally positive news for the financial markets. The scheme is necessary for the market, and the size of the reported toxic assets to be bought seems large," said Jun Kato, deputy general manager of the treasury business group at Shinkin Central Bank.
Traders and analysts said that as well as improved risk appetite investors were favouring currencies whose central banks had interest rates above zero and looked unlikely to deploy forms of quantitative easing to get their economies moving.
An announcement by the Federal Reserve last week that it would buy up to $300 billion in longer-term government debt sent the dollar into a tailspin as investors fretted it would flood the market with dollars.
The euro rose 1.1 percent to 131.41 yen. Earlier, it hit its highest since late October at 131.97 yen on trading platform ut for the time being, markets seem reassured and risk aversion may ease, said Akira Kato, senior manager for Bank of Tokyo-Mitsubishi UFJ's foreign exchange trading department.
"During the week, there will probably be more unwinding of risk-aversion type positions," Kato said, adding that the euro could rise toward 134 yen later this week.
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