Dollar, yen fall on UAE bank moves

By Satomi Noguchi

TOKYO (Reuters) - The dollar fell against other major currencies on Monday, retreating from sharp gains made last week, after the United Arab Emirates offered emergency assistance to banks in Dubai, soothing market fears about a looming debt default.

The yen slipped broadly with hedge funds selling it to cover their short positions in yen crosses, and as charts suggested the currency's steep gains last week that took it to a 14-year peak versus the dollar had run their course for now.

The action of the UAE central bank to allay concerns about Dubai debt fallout was providing near-term stability to the market, prompting speculators to reduce long positions in the safer dollar and the yen, traders said.

"Hedge funds are reversing their positions and buying up yen crosses after the Dubai debt worries eased a little bit," said a senior trader for a Japanese securities firm.

The greenback and the yen gained sharply last week as concerns about Dubai sparked unwinding of carry trades, with investors rushing to buy back the low-yielding dollar and yen which they had used to buy higher-yielding currencies and assets such as the Australian dollar.

The UAE's central bank set up an emergency facility on Sunday to support bank liquidity in the first policy response to Dubai's debt woes that threatened to paralyse lending and derail the global economic recovery.

But analysts said the UAE efforts were considered the minimum policy help and this would likely limit the impact.

"The (UAE central bank's) move offers stability to the market, but it also reflects the seriousness of the problem," said Masafumi Yamamoto, chief FX strategist for Japan at Barclays Capital.