Yen slumps to three-month low

The yen slumped to a three-month low against the dollar, while the euro pared its October gains on renewed fears about last week's plan to stem Europe's debt and bank crisis. The yen tumbled against the dollar after Japan intervened to curb the currency's climb, but more official action may be needed for the impact to hold.
Risk aversion reigned as fears about the European debt crisis weighed on MF Global Holdings. The futures broker, which bet heavily on the region's debt, filed for bankruptcy. Global stocks, commodities and riskier currencies fell. US Treasuries thrived and the euro wiped out all of the gains garnered last week after eurozone leaders agreed on action to resolve the European debt crisis.
The euro last traded down 2.2 percent at $1.3834, but remained up about 3.4 percent in October. "Last week's euro rally was purely a knee-jerk reaction and was overdone given the lack of details in the plan," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "Today's drop makes sense and this is probably the beginning of a longer trend downward for the euro."
Against the yen, the dollar was up 3.1 percent at 78.16 and was up 1.5 percent for the month. The euro was up 0.9 percent at 108.24. The euro gained 4.9 percent against the yen in October. Japan's intervention, the latest in less than three months and its third this year, followed repeated warnings about the yen's strength and came just days before the Group of 20 leaders' summit in Cannes, France.
Tokyo wants a weaker yen to help the export-driven economy Japanese recover from last spring's earthquake. The intervention came after the dollar hit a record low of 75.311 yen, with the greenback on track for its best monthly gain since March. Traders were inclined to test Tokyo's resolve, pushing the dollar below 78 yen even though there had been talk of possible official bids near that level. This brought it well below an earlier high of 79.553 yen on the EBS trading platform, its highest since August 4, when Japan last intervened to weaken the Japanese currency.
The greenback though was still shy of its 200-day moving average near 80 yen. "One has to question how seriously the market will take Japanese intervention," said Todd Elmer, G10 strategist at CitiFX, a division of Citigroup in New York. Finance Minister Jun Azumi said Tokyo stepped into the market on its own and would keep intervening until it was satisfied with the results. Analysts said the euro could remain weak ahead of a European Central Bank policy meeting on Thursday, where an interest rate cut for December may be flagged. The dollar index rose 1.9 percent to 76.516.