The yen snapped a losing streak on Tuesday as investors trimmed earlier bearish bets and booked profits, although gains appeared likely to be short-lived with demand for yen-funded carry trades set to pick up again. The euro reversed losses to trade 0.2 percent higher on the day at $1.4458, with offers said to be around $1.4485 - just below the currency's 15-month high of $1.4489 - and option barriers reported at $1.4500.
-- Yen off highs as sell-off in risk fades Against the yen, the euro was down only 0.2 percent at 121.94, recovering from a low of 120.16 yen hit earlier in the day. The Australian dollar also pared losses against the yen as did other growth-linked currencies as investors bought at lower levels.
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 US dollar was down 0.3 percent at 84.30 yen paring earlier losses after running into technical support at its 200-day moving average just below 83.50. Japanese real-money accounts were dollar/yen buyers, while offers were reported at 84.50. The dollar index, 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. Sterling fell to a five-month low versus the euro and a one-week trough of $1.6227 against the dollar after annual inflation came in at 4 percent versus 4.4 percent forecast.
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. The Canadian dollar was lower against the US dollar ahead of a rate decision by the Bank of Canada. It is widely expected to keep rates on hold.
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