NEW YORK (Reuters) - The yen slid sharply against the dollar and the euro on Monday after a U.S. Treasury official voiced support for Japan's efforts to boost growth and end deflation.
Wall Street and world equity markets were little changed in light volume as a lack of major economic news gave investors little reason to push stocks higher, for now.
The euro had already climbed as a European policymaker dismissed talk of intervening to weaken the currency, while U.S. stocks were unable to get further traction after hitting multi-year highs.
The dollar rose as high as 94.42 yen on Reuters data, the highest since early May, 2010, and was last up 1.8 percent at 94.33 yen.
The euro rose 2.1 percent to 126.46 yen, after reaching as high as 126.59 yen.
The yen plunged after U.S. Treasury Undersecretary Lael Brainard said the United States supports Japanese efforts to end deflation and re-invigorate growth. The markets viewed her comments as a green light to sell the yen further, analysts said.
"This suggests that the U.S. government has no problems with yen weakness and won't support any official criticism of Japan's exchange rate policies at the G20 meeting," said Kathy Lien, managing director at BK Asset Management in New York.
Tensions over whether some countries are deliberately trying to weaken their currencies were in focus, with French Finance Minister Pierre Moscovici saying euro zone countries need closer cooperation on exchange rate policy.
But that was offset by comments from European Central Bank policymaker Jens Weidmann, who said that discussions about an overvaluation of the euro are simply a diversion from governments' task of sorting out their economies. He said the euro was not over-valued.
After three days of declines against the dollar, the euro was lifted by investors looking to buy at low levels, and the currency accelerated its gains after Weidmann's remarks.
"Given the fragility of the markets lately, that was all it took to bring the single currency above $1.3400 and test the $1.3430 resistance area," said Matthew Lifson, senior analyst and trader at Cambridge Mercantile Group in Princeton, New Jersey.
The euro was up 0.3 percent at $1.3406 as speculators bought into the earlier dip to near three-week lows.
European Central Bank President Mario Draghi suggested last week that further euro strength could lead to an interest rate cut. French President Francois Hollande has also urged the euro zone to set an exchange rate target.
The Group of Seven major industrial nations may be about to add its weight to the debate in an effort to cool the rhetoric. Two G20 officials told Reuters the group was considering making a statement this week reaffirming a commitment to "market-determined" exchange rates.
G20 finance ministers and central bankers meet in Moscow on Friday and Saturday.
"The G20 meeting in Moscow this week seems certain to focus on 'currency wars' but beyond a bland call for countries not to engage in competitive devaluations, it's hard to see what concrete steps can be taken at this stage," said Kit Juckes, FX strategist at Societe Generale in London.
The fear of competitive devaluations by major economies has been building since new Japanese Prime Minister Shinzo Abe began putting pressure on the country's central bank to take aggressive easing measures to revive the nation's economy.
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Stock and other markets showed little reaction to a speech from Federal Reserve Vice Chairman Janet Yellen. Seen as a potential successor to Fed Chairman Ben Bernanke next year, Yellen said the central bank's aggressive and ongoing easing of monetary policy is warranted given the state of the labor market.
Investors will get some insight into President Barack Obama's plan for spurring the economy in his State of the Union address on Tuesday.
Encouraging U.S. and Chinese data last week helped push U.S. equities higher, sending the tech-focused Nasdaq to a 12-year closing high and the S&P 500 to a five-year peak.
Less than two months into the year, the S&P 500 is up more than 6 percent, but the rally has stalled with the S&P and Dow industrial indexes near record highs.
"This is still a market that looks terrific, but when you're up for six weeks in a row, everyone is going to want to take a pause going into the seventh week even if there is no bad news out there," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
"Everyone wants to buy on a dip in this market, but if you're on the sidelines right now, the decline we're seeing today just isn't the kind you would jump in on," Kuby said.
The Dow Jones industrial average closed down 21.73 points, or 0.16 percent, at 13,971.24. The Standard & Poor's 500 Index edged down 0.92 points, or 0.06 percent, at 1,517.01. The Nasdaq Composite Index was off 1.87 points, or 0.06 percent, to 3,192.00.
The benchmark 10-year U.S. Treasury note was off 4/32 to yield 1.964 percent.
MSCI's world equity index was down 0.3 percent, and the pan-European FTSEurofirst 300 index ended down 0.7 percent.
Brent crude prices fell as gasoline futures fell and as investors worried about the health of the euro zone economy.
Brent slipped 77 cents to $118.13 a barrel. U.S. crude futures settled up $1.31 to $97.03, narrowing the spread between higher priced Brent futures and their U.S. counterpart after it widened last week.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)
Updated Date: Feb 12, 2013 04:45 AM