Dollar down to mid-94 yen after rising on N. Korean nuclear news+

The U.S. dollar briefly fell to the mid-94 yen zone on Tuesday in Tokyo as investors locked in profits following dollar buying the previous day on North Korea's announcement of its nuclear test.

At 5 p.m., the dollar fetched 94.65-67 yen compared with Monday's 5 p.m. quotes of 94.98-95.00 yen in Tokyo. Financial markets in the United States and Britain were closed Monday for a holiday.

It moved between 94.51 yen and 95.08 yen during the day, changing hands most frequently at 94.70 yen.

The euro traded at $1.3939-3940 and 131.94-98 yen against $1.3984-3985 and 132.82-86 yen in Tokyo late Monday.


Although it spiked briefly above the 95 yen line in the early morning on geopolitical concerns triggered by North Korea's nuclear test, the dollar's upside was heavy and fell back as some market players thought buying of the U.S. unit was excessive, dealers said.

Pyongyang said Monday it conducted its second nuclear test, following its first one in October 2006. That put the yen under strain as Japan's geographical proximity to North Korea makes it hard to build up yen positions.

The dollar's upside was also capped due to lingering concerns about a possible downgrade of the U.S. sovereign rating, dealers said.

Some market players focused on how the U.S. Treasury auction on Tuesday will turn out. If fresh U.S. debt issues find few buyers, it will become a cause for dollar selling as it further fuels investor anxiety about the growing U.S. federal deficits, analysts say.

But the dollar may not tumble too sharply despite such concern because it has several things going for it, said Norihiro Tsuruta, chief strategist of global investment research at the Shinko Research Institute.

The U.S. financial sector has seen its health restored somewhat since the collapse of U.S. investment bank Lehman Brothers Holdings Inc. last September and the recent rise in commodity prices also points to an improvement in the global market, he said.

"The dollar is likely to be boxed in as it will undergo cyclical ups and downs against the yen for some time to come," Tsuruta said.

The euro was sold on position adjustments after topping the $1.4 line Monday, dealers said.