Thai Baht Clobbered by Coup Attempt, Yen Holds Gains

The Japanese yen meanwhile retained most of the day's gains against the euro after a European official overnight said markets had not yet digested policy makers' comments at the weekend G7 meeting that yen should rise against the euro.

But the Japanese currency eased around half a yen from session highs against the dollar after the Thai news, tracking a sharp decline in the baht. Some strategists viewed the move as a simple knee-jerk reaction, as the more-liquid Japanese currency sometimes trades as a proxy for less flexible Asian currencies.

"Why would domestic politics in Thailand cause more than a knee-jerk reaction to sell yen," said Rebecca Patterson, senior global currency strategist at J.P. Morgan in New York.

Developments in Thailand overshadowed U.S. data earlier that showed a surprisingly large fall in housing and the rate of wholesale inflation that weighed on the dollar.

The dollar was last at 117.62 yen, off 0.3 percent on the day but up from 117.05 before the news of the Thai emergency appeared on the wires.

Prime Minister Thaksin Shinawatra, who was in New York at a United Nations summit, declared a "severe state of emergency" in a voice broadcast on Thai television.

"There is a risk we might see pressure among some of Thailand's neighbors. Not that there is a serious risk of political contagion or anything. But in terms of sentiment you could see Indonesia, for instance, also under a fair amount of pressure," said Mike Moran, currency strategist at Standard Chartered in New York.

A trader with a Japanese bank said the move in dollar/yen was the result of short-covering after the news in Thailand.

Against the Thai baht the dollar rose to 37.78 baht, up from 37.305 and up over 1.3 percent on the day in the largest daily rise since October 2003.