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FOREX-Yen weakens as BOJ tweaks monetary policy, euro firmer

* Dollar and euro trade near February highs versus yen

* Euro awaits current account data, German ZEW

* Aussie slips from 1-month high as PBOC drains liquidity

By Anirban Nag

LONDON, Feb 18 (Reuters) - The yen fell to its lowest in nearly three weeks against the dollar and the euro on Tuesday, after the Bank of Japan held policy steady, as expected, and extended a special lending programme to support the economy.

In an attempt to get Japanese banks to lend more, the BOJ decided to extend three special loan facilities by one year. It also raised the maximum amount of the loans, and said financial institutions would be able to borrow funds at a fixed rate of 0.1 percent over 4 years instead of 1-3 years at present.

The measures were seen as an inclination to ease monetary policy and sent Japanese stocks higher and the yen lower. BOJ chief Haruhiko Kuroda said the economy was moving in line with the central bank's assessment, suggesting no further easing steps were likely in the near term.

The Nikkei stock average ended 3.1 percent higher, pushing the yen lower. The dollar was up 0.6 percent at 102.55 yen, having hit a February high of 102.745, while the euro was up 0.7 percent at 140.64.

"The extension of the loan schemes both in size and lifespan are seen as particularly beneficial to the financial sector, helping the Nikkei to end up and reverse the recent dollar/yen bear trend," said Tom Levinson, currency strategist at ING. He added that 102.85/95 yen resistance should hold for now.

Nevertheless, some market participants used the BOJ's announcement as an excuse to buy back dollars after the U.S. currency's recent decline. The latest easing by the BOJ comes nearly a year after it unleashed a massive bond-buying programme aimed at getting the economy out of years of deflation.

"The announcement should be very helpful for banks' profits, so it's very natural that the Nikkei should rise, led by banks, and that's why the dollar/yen soared," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.


The euro inched up against the dollar to $1.3715, not far from a high of $1.3723 touched on Monday, its highest since Jan. 24. It is likely to draw some support from an expected increase in the current account surplus for the euro zone, with figures due at 0900 GMT.

Analysts said year-end repatriation by banks to meet balance sheet requirements probably helped the euro zone boost the current account surplus.

Also due is the German ZEW survey at 1000 GMT. While the economic sentiment survey is likely to show little change, the current conditions are forecast to show improvement in February. That could help the euro, though resistance is expected at $1.3740 - the high hit on Jan. 24.

The Australian dollar slipped from a one-month high of $0.9079 to trade flat on the day at $0.9030. It eased after the Chinese central bank drained funds from the market and signalled a continuation of its tight liquidity policy aimed at managing a slowdown in the world's second-largest economy.

The Australian dollar is often used as a more liquid proxy to investments in China.

Earlier, in minutes released on Tuesday of the Reserve Bank of Australia's Feb. 4 meeting, when the RBA surprised some by dropping its bias to ease further, the central bank noted that a lower exchange rate would support growth.