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US dollar up in Asia after sell-off as stocks take breather

One-hundred euro, from top, U.S. one-hundred dollar, and ten-thousand yen banknotes are arranged for a photograph in Soka City, Saitama Prefecture, Japan.

[HONG KONG] The US dollar edged up against the yen and euro in Asia on Friday after seeing sharp losses on Wall Street while stock traders took a rest from the previous day's rally.

Minutes on Wednesday showing Federal Reserve policymakers are confident the US economy is strong enough to withstand a December interest rate hike fuelled buying across global markets and sent the dollar up against its major rivals.

However, while equities held their gains, the dollar's strength dissipated through the day as investors acknowledged the fact that any increase in borrowing costs will be slow.

"Traders are pulling back from their long dollar trades for now, given speculation that the Fed's tightening cycle may be more gradual than the market had previously priced," Imre Speizer, markets strategist at Westpac Banking in Auckland, told Bloomberg News.

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The greenback fell to 122.87 yen in New York Thursday from 123.59 yen the day before. The Bank of Japan's refusal to ramp up its stimulus - despite the country being in recession - also provided support to the yen.

The euro jumped to US$1.0735 in New York, from 1.0660 on Wednesday.

However, while the US unit recovered against the yen and euro Friday, it continued to face headwinds from emerging market currencies, with the upbeat Fed outlook providing dealers with confidence to buy risker, higher-yielding assets.

The South Korean won rose 0.2 per cent, Indonesia's rupiah added 0.3 per cent and the Malaysian ringgit put on 0.6 per cent. The Australian dollar and Thai baht also pushed higher.

In share trading Tokyo retreated as the overnight pick-up in yen weighed on exporters, whose overseas sales are affected by a strong currency, while Hong Kong also dipped. Sydney and Shanghai were slightly higher.

Chinese investors are set to end the week on a positive note despite a recent spate of data reinforcing concerns about a growth slowdown in the world's number two economy.

The Shanghai market has had a tumultuous week, with the imminent restart of initial public offerings causing fears about liquidity while also bolstering confidence that stability is finally returning.

"The market is holding rather well, with volatility remaining at reasonable levels, considering all the recent developments such as soft economic figures," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group in Shanghai.

"This would seem to indicate investors are gradually recovering confidence in the long-term performance of the equity market."