FOREX-Yen slides as U.S. avoids 'fiscal cliff', dollar retreats
* U.S. Congress approves deal to avoid "fiscal cliff"
* Yen and dollar down broadly as risky assets rally
* Euro/yen hits 18-month peak, highest since July 2011
* Dlr/yen hits 29-month peak, highest since late July 2010
SINGAPORE, Jan 2 (Reuters) - The yen fell broadly and tumbled to an 18-month low versus the euro on Wednesday as U.S. lawmakers passed a bill to avoid the "fiscal cliff", bolstering investors' appetite for risky assets.
The dollar, a traditional safe haven currency that tends to rise in times of market stress, also came under pressure and retreated against the Australian dollar as well as the euro.
The United States averted economic calamity on Tuesday when lawmakers approved a deal preventing huge tax hikes and spending cuts that would have pushed the world's largest economy off the "fiscal cliff" into recession.
The euro rose to as high as 115.995 yen on trading platform EBS, its highest level against the Japanese currency since July 2011. After trimming some of its gains, the euro was up about 1.2 percent for the day at 115.73 yen.
The dollar climbed to 87.335 yen as of 0650 GMT, its highest level against the Japanese currency since late July 2010, or roughly 29 months. The dollar last changed hands at 87.23 yen, up 0.6 percent on the day.
"The market is basically in risk-on mode, with Asian equities doing great, the euro being bought and the yen falling across the board," said a trader for a Japanese bank in Singapore.
The yen's slide started earlier in the Asian trading session on Wednesday as it became increasingly likely that the U.S. "fiscal cliff" of steep tax increases and spending cuts would be avoided.
The improvement in investor risk appetite added to pressure against the Japanese currency, which has been dogged by expectations that a new Japanese government led by Prime Minister Shinzo Abe would push the Bank of Japan into more forceful monetary easing to beat deflation.
"I would think there is more scope for yen weakness," said Sim Moh Siong, FX strategist for Bank of Singapore, adding that one caveat is that issues related to the U.S. debt ceiling remain unresolved.
"There could still be some rocky moments," he said.
Still, the deal to avoid the fiscal cliff may bode well for the U.S. economy's outlook and give U.S. Treasury yields a boost, and the yen might weaken against the dollar on the back of that, he added.
The safe haven dollar fell broadly, with the euro rising 0.5 percent to $1.3271, and the Australian dollar climbing 0.8 percent to $1.0475.
One problem with the deal approved by U.S. lawmakers is that it does little on the issue of long-term fiscal sustainability, Steven Englander, head of global G10 currency strategy for Citigroup, said in a research note.
"If the political outcome continues to be avoidance of long-term measures and short-tem fixes that avoid politically difficult territory, the policy mix of easy fiscal and easy money will remain in place for an extended period," he said.
"Even with somewhat better growth prospects, the policy mix and returns to fixed income, the mainstay of foreign buying of USD assets, remain unattractive. So we have a USD that is likely to remain under pressure," Englander added.
One factor that has weighed on the dollar is the U.S. Federal Reserve's asset-buying programme, or quantitative easing.
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