The yen's rally against the dollar and euro stalled on Tuesday after as a slide in China's share markets halted, although the dealers remained on guard as it was uncertain whether Chinese equities had found a bottom. The euro earlier touched 129.08 to the low-risk, safe-haven yen after trimming losses to stand at 129.375 EURJPY=. The common currency sank to an eight-month trough of 128.69 overnight. The dollar inched up 0.1 percent to 119.59 yen JPY=. The greenback plumbed an 11-week low of 118.705 on Monday as equities worldwide dropped sharply after Shanghai shares .SSEC sank 7 percent on weak economic indicators that rekindled global growth concerns. Shanghai shares managed to limp up 0.2 percent on Tuesday after Chinese regulators said they may restrict stock sales by major shareholders. "China looks to be the main theme for 2016, as developments there could unsettle equities while disrupting the Fed's intended rate hike schedule," said Junichi Ishikawa, market analyst at IG Securities in Tokyo. "China risk adds a layer of support to the yen, which already looks to appreciate this year as Japan's current account surplus grows at a faster-than-expected pace," he said. Japan posted a current account surplus for the 16th straight month in October as the trade balance swung to a surplus, Ministry of Finance data showed last month. The prospect of the Bank of Japan (BOJ) holding off from loosening monetary policy further in an attempt to preserve its dwindling arsenal of easing measures was also seen propping up the yen. "The Japanese yen could outperform amid a continued retreat in expectations for further near-term BOJ easing. This would leave the currency well positioned to benefit from any softer U.S. data flow or rise in risk aversion. Tactically we favor USD/JPY shorts," wrote currency strategists at CitiFX. The Australian dollar, which took a heavy knock overnight due to its status as a proxy of China-related trades, found breathing space. The Aussie was up 0.2 percent at $0.7205 AUD=D4 after tanking 1.3 percent on Monday. The New Zealand dollar was flat at $0.6747 NZD=D4 after an overnight fall of 1.1 percent. The Canadian dollar steadied as crude oil prices rose modestly. The dollar was flat at C$1.3911 CAD=D4 after surging roughly 1 percent to as high as C$1.3983 against the loonie overnight. The euro traded at $1.0820 EUR=, pushing away from a one-month trough of $1.0781 touched on Monday as flight-to-quality pushed down Treasury yields and weighed on the dollar.
