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LONDON (Reuters) - A sell-off in the yen ran out of steam on Tuesday as it neared 100 to the dollar, while a fall in Chinese inflation and a solid start to the U.S. corporate earnings season helped shares and commodities.
The Japanese currency reached 99.67 to the dollar before the sell-off stalled, the greenback's strongest level against the yen since May 2009. The euro peaked at 129.94 yen, its highest since January 2010.
Most market players expect yen selling to resume but said it may have to wait until currency options close to the 100 mark expire. This should end the current demand from banks to buy the yen and sell dollars to protect their exposure. <FRX/>
Analysts believe it is only a matter of time before this happens and the dollar sails past the 100 yen mark.
"It looks inevitable, and I'd say (it will break 100) within the next month, if not sooner," said Alpesh Patel, a founding principal at asset manager Praefinium Partners.
The dollar selling on Tuesday left the greenback down 0.4 percent at 98.92 yen, while the euro was also off 0.15 percent on the day at 129.05 yen. <FRX/>
The U.S. currency has still gained around 7 percent against the yen since the Bank of Japan (BOJ) unveiled a massive stimulus program last Thursday involving large purchases of long-term Japanese government bonds (JGBs).
The BOJ's bold measures have had a major impact on the world's main debt markets, sending Japanese government yields down sharply and spurring a search for higher-yielding assets, which has seen yields fall on U.S. and euro zone bonds.
"Markets are increasingly focused on the notion that larger JGB purchases, at longer maturities, by the BOJ could push Japanese domestic long-term investors elsewhere," said Vassili Serebriakov, strategist at BNP Paribas.
However, yields on highly rated euro zone bonds moved up from record lows on Tuesday, as investors began to position for fresh government debt auctions.
Dutch 10-year bond yields were 6 basis points higher on the day at 1.5 percent, pulling back from last week's record lows of 1.384 percent, after a sale of new 20-year government bonds.
German 10-year bond yields were also higher at 1.28 percent, having hit 1.2 percent on Friday, their lowest level since mid-2012 before European Central Bank President Mario Draghi promised to do whatever it took to save the euro.
The yield on 10-year Treasury notes stood at 1.76 percent, three basis points up on the day, though not far from a four-month low of 1.68 percent when markets began to price in the effect of the BOJ's plans.
Equity markets were up on demand for mining stocks as investors hoped for more accommodative monetary policy from China following benign inflation data, and after U.S. resources giant Alcoa posted solid earnings.
Alcoa Inc (AA.N), the largest U.S. aluminum producer, kicked off U.S. earnings on Monday, reporting an increase in quarterly profit and easing some concerns about corporate results in the first three months of 2013.
Europe's FTSE Eurofirst 300 index .FTEU3 was up 0.3 percent at 1,168.6 points by midday, while the London FTSE 100 .FTSE, Paris's CAC-40 .FCHI and Frankfurt's DAX .GDAXI were between 0.3 and 0.4 percent higher.
Earlier, the MSCI's broadest index of Asia-Pacific stocks outside Japan .MIAPJ0000PUS rose 1 percent, led by Australian shares , which gained 1.4 percent on rises in blue-chip financials and miners. .L.EU
MSCI's world equity index .MIWD00000PUS, which tracks share prices in 45 countries, was up 0.3 percent, though gains may slow as U.S. stock futures suggest Wall Street will have a mixed day. .N
China's annual consumer inflation cooled in March as food prices eased from nine-month highs and producer price deflation deepened, data showed on Tuesday, leaving policymakers room to keep monetary conditions easy and nurture a nascent recovery.
The Chinese data underpinned demand for copper, which climbed to a two-week high of $7,550 a metric ton (1.1023 tons) on the London Metal Exchange before paring some of the gains to trade around $7,530 a metric ton, up 1 percent.
LME copper prices are recovering from eight-month lows of $7,331.25 a metric ton hit last week but are still down by more than 5 percent from a peak above $8,300 a metric ton in early February as weak global demand leads to a surplus in supply.
Oil also gained on the Chinese data, and a stalemate in talks between Iran and Western nations over its nuclear program and rising tensions on the Korean peninsula also supported prices.
North Korea has nearly closed its last major project with its southern neighbor, raising speculation it may test a nuclear weapon or a missile.
U.S. oil futures were up 0.1 percent at $93.47 a barrel and Brent rose 0.4 percent to $105.09. <O/R>
Additional reporting by Neal Kimberly; Editing by Will Waterman