LONDON -- The dollar rose strongly above 122 yen on Monday on repeated Bank of Japan buying, but a firm finish on the Tokyo Stock Market limited the dollar gains. European shares were tipped to open higher after advances in Asia overnight and a record close on Friday on Wall Street, which was closed on Monday for the delayed U.S. independence day holiday.

The dollar opened sharply higher against the yen in Europe on repeated BOJ intervention but off its highs in late Tokyo on steady sales from Japanese exporters and profit-taking by speculative operators. It traded around 122.50 yen compared with 121.01/04 in early Tokyo and 120.92/02 yen in late New York on Friday. Senior Finance Ministry official Haruhiko Kuroda, warning against a "premature" yen rise, confirmed that authorities had acted in the foreign exchange market earlier on Monday. "A premature strengthening of the yen's exchange rate is not appropriate.

Today we took action in the market," Kuroda said. Currency dealers in Tokyo said although the closely-watched "Tankan" Survey, Japan's key indicator of business sentiment, showed an improvement in June from the previous survey in March, it was still weaker than the currency market had expected. Japanese monetary authorities were detected buying dollars after the greenback dipped below 122 yen in thin lunchtime trade.

But the intervention-driven gains were blunted by strength in Tokyo share prices, which underscored capital flows into yen. Tokyo stocks gained solid ground to close at the highest level in more than 21 months, supported by the quarterly "Tankan" Survey and by a bullish trend in U.S. stocks. The benchmark Nikkei 225 Average 225 finished trading 202.59 points or 1.13 percent higher at 18,135.06. It was the first close above the psychologically important 18,000 level since September 25, 1997. European stocks were seen opening mixed to higher on Monday on the back of last week's record closes on Wall Street's main stock indices.

Markets were now focusing on the second quarter earnings season which could bring upgrades for stocks especially in the retail and other economy-sensitive sectors, analysts said. Focus was expected on oil stocks in Europe after news that Ttalfina was making an offer for rival elf, valued at 42 billion euros. The German Dax Index opened with a new 1999 high and extended gains in early trading, but volumes were likely to be fairly thin in the absence of U.S. investors.

Retailer Kartsadt, Engineer Thyssenkrupp, Utility Viag and Telekom were the only blue-chip losers while car stocks firmed after recently posting good increases in U.S. car sales. "I think we will see markets a little up due to the record closes on the Dow and Nasdaq but there will be little reason to go much higher as there is a national holiday in the U.S.," said a senior dealer at a German bank in Frankfurt. The Dow Jones industrial average closed up 0.66 percent at 11,139.24, beating its previous record set on May 13. The tech-laced Nasdaq closed up 1.29 percent to 2,741.02, its third record close in a row.

Investors were seen buoyed by hopes that last week's quarter-point interest rate rise was a one-time event. European government bonds opened a touch firmer in quiet trading, mirroring overnight gains in Japanese government bonds. Activity was expected to be subdued with the U.S. market closed. The euro was weak, trading at $1.0230 barely above last week's life low of $1.0216, after European monetary authorities expressed no discomfort over its levels.

(Reuter)