* Yen off highs as sell-off in risk fades
* Speculators trim carry positions but demand to buy dips
* Euro near 15-mth highs vs dlr, option barrier at $1.45
(Recasts, adds quote, updates prices)
By Neal Armstrong and Anirban Nag
LONDON, April 12 (Reuters) - The yen snapped a losing streak on Tuesday as investors trimmed earlier bearish bets and booked profits, although gains appeared likely to be shortlived with demand for yen-funded carry trades set to pick up again.
The euro
Against the yen, the euro was down only 0.2 percent at
121.94, recovering from a low of 120.16 yen
"The sell-off in risk looked overdone at its worst," said Adam Cole, Global Head of FX strategy at RBC Capital Markets, noting that the Aussie/yen pair was down only around 40 points from Monday's U.S. close, having plunged 200 points in Asia to around 86.80 yen.
The initial sell-off in risk was prompted by Japan's Nuclear Safety Agency raising the severity rating of the Fukushima accident to level 7 -- the highest classification and the same as the world's worst nuclear disaster at Chernobyl in 1986. [ID:nL3E7FB2TZ]
The news led some speculators to book profits on carry trades, where investments in riskier assets and higher-yielding currencies such as the Australian dollar are funded by going short on the low-yielding yen.
Short yen positions and key technical indicators in the euro/yen and Aussie/yen pairs had been indicating the chances of a temporary pullback after their recent rally. With this correction, some analysts said, the trend for broad yen weakness was likely to be on more solid ground.
"The broader trend for increased risk should remain as the market focuses on leading indicators," said Chris Walker, currency strategist at UBS. "If U.S. sentiment continues to improve and risk appetite is stable this will keep carry trades going."
Group of Seven (G7) intervention on March 18 to weaken the Japanese currency has fuelled yen selling to fund carry positions. Expectations the Bank of Japan will keep policy loose to help the economy rebound from last month's devastating earthquake have also hit the yen.
The U.S. dollar was down 0.3 percent at 84.30 yen
STERLING FALLS, BANK OF CANADA AWAITED
The dollar index <.DXY >, which tracks the greenback against a basket of major currencies, was down slightly at 74.971, near a 16-month low of 74.838 hit on Friday.
Dovish comments from key U.S. Federal Reserve officials the previous day indicated the Fed is not in any hurry to tighten policy, likely limiting the greenback's upside potential in the near future. [ID:nN11296347]
Sterling fell to a five-month low versus the euro
Expectations for a rate rise from the Bank of England were
pushed back to October.
The euro was also helped by China's pledge to carry on buying Spanish debt and help fund a restructuring of the country's savings banks. [nLDE73B12SRM]
The Canadian dollar
Societe Generale said in a note that Tuesday's pullback in
risk had created an ideal opportunity to go long on the Canadian
dollar/yen trade
It said it had entered a long spot position with stop losses at 85 yen and targeting 92 yen, up from around 87.90 now. The bank expects the Canadian dollar to strengthen on the back of continued investment expenditure and rising employment. (Editing by Catherine Evans)