FOREX-Yen weakens past key level, sterling pares gains

By Rae Wee

SINGAPORE, Oct 3 (Reuters) - The yen breached the key level of 145 a dollar on Monday, for the first time in more than a week since Japan's intervention to prop up the currency, while sterling gave up some of its gains after a modest recovery at the end of last week.

The yen bottomed at 145.4 to the dollar, and last traded down 0.1% at 144.9, in thin Asian trade on a holiday in China, South Korea and some Australian states.

Monday's fall came after Finance Minister Shunichi Suzuki's comments that Japan stood ready for "decisive" steps in the foreign exchange market if excessive yen moves persisted.

Sept. 22 was the last time the currency had weakened below 145 to the dollar, after the Bank of Japan stuck with ultra-low interest rates, which prompted a record expenditure of 2.8 trillion yen ($19.7 billion) by authorities to prop up the yen.

Elsewhere, sterling lost 0.69% to $1.1088, following a strong rebound at the end of last week when the Bank of England said it would buy as much government debt as needed to restore order after financial chaos unleashed by new Prime Minister Liz Truss's plans to cut taxes.

The government was sticking with the policy, Truss reiterated on Sunday, adding that her cabinet had not been told in advance of the decision by finance minister Kwasi Kwarteng.

The Australian and New Zealand dollars gained ground in Asia ahead of expected rate hikes by their central banks during the week.

The Aussie was up 0.25% to $0.64270, while the kiwi was 0.41% higher at $0.56265.

The Reserve Bank of Australia and the Reserve Bank of New Zealand meet on Tuesday and Wednesday, respectively, with markets expecting both to lift their cash rate by 50 basis points, though focus will also be on the tone of policymakers.

"The RBA could be quite influential if they give a more nuanced approach and signal that they may come down to 25 basis points in the November meeting. That might be taken, globally, quite well," said Chris Weston, head of research at Pepperstone.

The euro fell 0.1% to $0.9790, as expectations for another jumbo European Central Bank rate hike this month, following a red-hot inflation print, heightened worries that the economy would be tipped into a recession.

Data on Friday showed that euro zone inflation zoomed past forecasts to a record high of 10.0% in September, beating expectations of 9.7%.

"The ECB is still going to have to go hard ... for me, Europe and the UK, it's less about relative interest rate dynamics, and more about growth dynamics," said Weston.

"I think what we're starting to try and do now is look at markets where we can price inflation or start feeling a bit more confident about the trajectory around inflation. I think the U.S. falls into that category."

U.S. non-farm payrolls are due at the end of the week, while a flood of manufacturing PMI data out later on Monday will also give insight into the outlook for the global economy.

The U.S. dollar index rose 0.06% to 112.30.

(Reporting by Rae Wee; Editing by Clarence Fernandez)