Yen in favour as China stimulus underwhelms, euro pressured

By Ian Chua

SYDNEY (Reuters) - The yen was broadly firmer early in Asia on Tuesday, having powered to a two-year high on the euro as nervous investors sought the safe-haven Japanese currency even as China took fresh steps to stimulate its economy.

The euro fell as far as 122.085 , reaching a low not seen since April 2013. The dollar fetched 112.34 yen , erasing Friday's 0.9 percent gain. The Australian dollar was back below 80.50 yen , pulling well away from a recent high of 82.00.

Late on Monday, China's central bank announced it was cutting the amount of cash that banks must hold as reserves - its fifth since Feb. 2015. The move should inject an estimated $100 billion worth of long-term cash into the bank system.

While the timing may have come as a surprise to some, many analysts had expected Beijing to deliver more cuts not just to the reserve ratio but interest rates as well this year.

Market reaction was underwhelming at best, perhaps reflecting a growing view among global investors that major central banks are running out of ideas to spur growth.

The European Central Bank is seen certain to deliver another round of policy easing when it meets next week, particularly with the euro zone falling back into deflation.

The common currency last traded at $1.0873 , having plumbed a one-month low of $1.0859 overnight. Since peaking at $1.1377 on Feb. 11, the euro has been on a steady slide as markets bet the ECB will act at its March 10 policy review.

"Inflation is now negative throughout the big four euro zone economies... that is seen to mandate a strong response from the ECB on 10 March," noted Ray Attrill, global co-head of FX strategy at National Australia Bank.

German 10-year Bund yields dipped into negative territory on the data and were last flirting with zero percent.

By contrast, Australia's central bank is likely to stand pat on policy later in the day, leaving the cash rate unchanged at a record low 2.0 percent. The decision is due at 0330 GMT.

That has helped the Aussie hold its ground on the greenback. It was last a touch firmer at $0.7144 , steadying after a recent fall from $0.7257 to $0.7109.

The Reserve Bank of Australia has been steadfast in its view that the economy will gradually pick up steam even in the face of recent global market volatility and renewed concerns about slower global growth.

Those concerns will either ease off or flare up as investors digest a flood of PMI manufacturing surveys from China to Europe to the United States due out over the next 24 hours.

(Reporting by Ian Chua; Editing by Eric Meijer)