The yen pared earlier gains, sterling trimmed losses and the euro rose against the dollar on Tuesday in an immediate market move after the Chinese central bank raised interest rates.

The move in currencies reflected the view that the global economy is in good shape, able to shrug off the current financial market turmoil and perhaps encourage investors back into carry trades, one trader said.

At 6:45 a.m. EDT the dollar was trading at 114.45 yen, still down on the day but up around 25 ticks from just before the People's Bank of China announcement.

Similarly, the euro was trading at 154.40 yen, compared with around 154.00 yen beforehand.

The euro rose 25 pips against the dollar to $1.3495, while sterling rebounded about half a cent to $1.9830, still down on the day, however.

The PBOC said it would raise its deposit rates by 27 basis points as of Wednesday "to stabilize inflation expectations."

This will lift the one-year deposit rate to 3.60 percent and the one-year lending base rate to 7.02 percent.

(Published by Reuters, August 21, 2007)

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