NEW YORK (MarketWatch) -- The Japanese yen remained under pressure Tuesday, as renewed risk appetite in the wake of a global series of government bank bailouts contributed to equity markets enjoying sharp rebounds for a second straight session.
Meanwhile, the dollar index , which measures the greenback against a basket of six major currencies, fell to 81.025, down from 81.572 late Monday.
The yen had cemented its role as the top safe-haven currency as financial turmoil deepened and equities plunged recently.
It rallied sharply against all major counterparts as foreign-exchange traders abandoned once-popular carry-trade strategies. Carry trades involve borrowing funds in low-yielding currencies such as the yen to buy assets denominated in higher-yielding currencies.
But hopes that the massive government bailouts now being undertaken in Europe and the United States will free up frozen credit markets and avert a collapse of the global financial system have touched off a reversal of safe-haven flows, traders said.
"It can no longer be said that governments across the globe are underestimating the severity of the current financial turmoil," said Christian Lawrence, a rates and foreign-exchange strategist at RBC Capital Markets. "It is now clear that no government will allow their financial system and economy to collapse."
The dollar rose to 102.70 yen, up from 101.98 yen in North American trading late Monday.
The euro fetched $1.3722, up from $1.3587.
The British pound continued its recent rebound, rising to $1.7534 against the dollar from $1.7342. Sterling had fallen to a five-year low against the dollar near $1.7000 last week.
Keyed to equities
Japanese markets were closed Monday for a public holiday. On Tuesday, stocks soared with a vengeance in Tokyo, with the Nikkei 225 Average posting a 14.2% gain for its biggest one-day percentage jump in history. See Asia Markets.
The dollar-yen currency pair "probably will still be driven by global market sentiment and the performance of the stock markets," wrote strategists at KBC Bank in Brussels.
However, "given the sharp swings higher on most stock markets, we consider the yen losses as not really excessive," they said.
Policy makers in Washington detailed a massive push to shore up the U.S. banking sector.
Following similar moves by European governments, the Treasury said it would take as much as $250 billion in stakes in nine major banks in order to recapitalize the sector. See full story.
Rate implications in the U.K.
The pound traded higher on the dollar, extending gains scored Monday in reaction to the U.K. government's plan to inject up to 37 billion pounds into the nation's banking sector, as bleak economic data did little to damp enthusiasm for sterling.
U.K. home sales continued to decline in September, according to a survey by the Royal Institute of Chartered Surveyors, which found the average number of completed sales per surveyor over the last three months fell to its lowest level in at least 30 years.
