* Dollar lifted by global rally in equities
* Chinese PM says yuan adjustment very small
* Loonie in focus ahead of central bank meeting
(updates, adds fresh quotes)
By Anirban Nag
LONDON, Sept 9 (Reuters) - The yen fell for the third
straight day on Wednesday as a rally in global stock markets
sapped demand for safe-haven assets, while the low-yielding euro
also weakened as a recent unwinding of risky euro-funded carry
trades took a breather.
Japan's Nikkei .N225 jumped 7.7 percent, posting its
biggest single-day gain in nearly seven years, after Prime
Minister Shinzo Abe's comments raised hopes of more fiscal
stimulus. That set the stage for a 2 percent rally in European
stocks .FTEU3 with Wall Street also set for a rise.
The dollar was up 0.7 percent at 120.62 yen JPY= while the
euro was down 0.5 percent at $1.1145 EUR= , with the single
currency also suffering due to widening interest rate
differentials between two-year U.S. Treasury yields US2YT=RR
and their comparable German bunds DE2YT=RR .
The euro had been supported in recent weeks as investors
unwound risky euro-funded carry trades which involved selling
euros to buy high-yielding currencies for better returns.
"In the short term, US-German rate spreads are pushing back
to their widest of the year and could start to weigh on the
euro," said Chris Turner, head of currency strategy at ING.
"At the same time if there is -- albeit temporarily -- a
recovery in the risk environment, we should see a return of
euro-funded trades."
Ever since China devalued its currency in early August, a
move that sent shockwaves across global markets, the dollar has
followed a pattern of moving with the ebb and flow in risk
appetite. That pattern tends to favour the safe-haven yen and to
a certain degree the low-yielding euro when riskier assets such
as stocks and commodities are widely sold.
Chinese Prime Minister Li Keqiang said on Wednesday the
recent adjustment in the yuan was "very small" and there was no
basis for continued devaluation. Li added Beijing did not
devalue the yuan in order to stimulate the country's exports,
soothing fears of a prolonged currency war.
Meanwhile, the Canadian dollar fell against the U.S. dollar
to C$1.3229 CAD=D4 after gaining 0.8 percent on Tuesday as
crude oil, a major export for Canada, surged. A tumble in crude
prices had sent the loonie to an 11-year low last month.
The Bank of Canada is expected to keep rates unchanged at
0.5 percent in light of recently upbeat data after already
cutting twice this year, although market participants are
readying for dovish undertones. The decision is due at 1400 GMT.
"The statement is likely to reflect caution on recent market
volatility and oil prices, adding a dovish tone. With market
pricing of future rate cut risk very much loaded towards the
back end, we see the risk to the downside for the CAD today,"
said Adam Cole, head of G10 FX strategy at RBC Capital.