Dollar strikes 4-1/2-year high vs yen

The dollar soared to a 4-1/2-year peak against the yen and an 11-week high versus the euro on Wednesday as a sharp rise in U.S. bond yields boosted the dollar's allure while carry trades proved resilient.

The euro fell to one-month lows against the yen earlier in the session on concerns that rising global bond yields and sluggish stock markets would spark an unwinding of carry trades, where investors use the low-yielding currency for financing investment in high-yielding ones like the New Zealand dollar.

The single currency later erased the losses and rose more than 0.5 percent against the yen, as a spill-over from soaring U.S. yields to other assets appeared limited and encouraged risk takers, said a chief dealer at a U.S. securities firm.

"An extremely pessimistic outlook on the U.S. economy has given way to views that U.S. fundamentals are solid and are reflected in the sharp rise in yields," he said.

"If risk-taking ability isn't abating and if U.S. yields are topping 5 percent, why buy kiwi, Aussie or pound? The dollar preference will continue and it's back to carry trade."

The rise in U.S. bond yields pushed the euro to 11-week lows below $1.3300.

The euro fell as low as $1.3286 on Reuters data, the lowest level since late March, but later trimmed its losses and stood at $1.3306 , little changed from late U.S. trading on Tuesday.

Against the yen, the euro was up 0.5 percent at 162.57 yen , having regained ground after dipping to a one-month low of 161.45 yen earlier in the session.

The high-yielding New Zealand dollar was up 0.6 percent against the yen at 91.6 yen while the Australian dollar was also up 0.5 percent at 102.69 yen .

The dollar was trading at 122.23, up 0.5 percent.

Earlier this session, the benchmark U.S. 10-year yield jumped to five-year highs of 5.31 percent after climbing on Tuesday on views that robust global growth could prompt central banks to raise interest rates, and due to relentless selling by mortgage players. Treasuries recovered somewhat in Asia since then with the 10-year yield trading at 5.28 percent.

(Reuters)By Chikako Mogi