Dollar slips as China rolls out stimulus

By Tom Westbrook

SINGAPORE (Reuters) -A surging yen steadied on Monday as Japan's incoming prime minister signalled monetary policy should remain accommodative, while commodity currencies were lifted to the year's highs by investor hopes of a turnaround in China's economy.

Japan's yen had leapt on Friday when Shigeru Ishiba, a former defence minister and erstwhile critic of aggressively easy policy won the leadership of the ruling Liberal Democratic Party, which controls parliament and will vote him into office.

It edged out to a one-week high of 141.75 in the Asia session but further moves were capped as Ishiba told public broadcaster NHK that from the government's standpoint, policy must remain accommodative as a trend, given economic conditions.

Analysts said that was enough to pause the sharp rise in the yen following his victory and that the likelihood of a snap election in the coming months - something Ishiba hinted at on Sunday - could weigh on the yen at least over the short term.

"An election basically takes the Bank of Japan out of the equation until December...a marginal yen negative," said Ray Attrill, National Australia Bank's head of foreign exchange strategy.

Elsewhere the euro was stable at $1.1167 and sterling traded at $1.3391 with markets looking to U.S. jobs data on Friday as the next major data point that could guide the pace of U.S. interest rate cuts.

European inflation data on Tuesday is also keenly awaited.

The Australian and New Zealand dollars hit 2024 highs as rate cuts and expectations of fiscal support in China raised hopes of an improvement in the slowing economy and drove gains in Chinese markets and everything exposed to China's growth.

The Australian dollar was up 0.5% at a 20-month high of $0.6941 and the New Zealand dollar was up 0.5% to a 14-and-a-half-month high of $0.6375.

Last week the U.S. Federal Reserve's favoured inflation measure showed inflation running at a pretty benign 2.2% for the 12 months to August, sending U.S. yields and the dollar lower.

"The trend over next year or so is for the dollar to go down," said Commonwealth Bank of Australia strategist Joe Capurso.

"Inflation is under control. Interest rates are going down and that's good for the global economic outlook, good for risk taking and good for commodity currencies like the Aussie."

Beijing's raft of stimulus measures drove a rally in China's yuan last week, even as interest rates were lowered, as investors piled into Chinese stocks that notched their best week in a decade. The yuan broke the psychological 7-per-dollar mark in offshore trade on Friday though it hovered at 7.0129 in onshore trade on Monday.

(Reporting by Tom Westbrook;Editing by Shri Navaratnam and Sam Holmes)