Australian dollar rebounds slightly after Korea conflict

THE Australian dollar was lower at noon after recovering slightly from heavy overnight losses due to the threat of further conflict on the Korean peninsula.

THE Australian dollar was lower at noon after recovering slightly from heavy overnight losses due to the threat of further conflict on the Korean peninsula.

At 12pm (AEDT) today, the dollar was trading at 97.68 US cents, down almost one US cent from yesterday's close of 98.55 cents.

Since 7am (AEDT) today, the local unit traded in a range between 97.19 US cents and 97.80 cents.

Commonwealth Bank currency strategist Joe Capurso said the local unit was recovering after losing around two US cents on yesterday's news from the Korean peninsula.

"This issue has come and gone over the last four or five decades and the market has decided it's not the disaster that it might have been and so the Aussie is just making a bit of a recovery," Mr Capurso said.

The United States says it is too early to consider any military response to North Korea's attack on a South Korean island, but condemned what could be one of the worst border crises in nearly 60 years.

The Pentagon was closely monitoring the latest flashpoint in the Yellow Sea with the nuclear-armed state, and Defence Secretary Robert Gates spoke by phone with South Korean Defence Minister Kim Tae-Young, officials said.

Meanwhile, Europe's efforts to contain its debt crisis came under increasing strain yesterday as bond market jitters shook Portugal and Spain, seen as the 16-nation eurozone's next weakest links now that Ireland has followed Greece by accepting a massive international rescue.

Mr Capurso said the weaker than expected construction work done figures released by the Australian Bureau of Statistics (ABS) today had not affected the local unit.

He expects the local currency to gain momentum over the course of the afternoon to trade between 97.19 and 97.80 US cents.

"So long as the Korean issue doesn't get worse," he said.

Meanwhile, the Australian bonds market was firmer at noon.

At 12pm (AEDT) on the ASX 24, the December 10-year bond futures contract was at 94.535 (implying a yield of 5.465 per cent), up from yesterday's close at 94.510 (5.490 per cent).

The December three-year bond futures contract was at 94.850 (5.150 per cent), up from its previous close of 94.840 (5.160 per cent).