By Vidya Ranganathan
SINGAPORE (Reuters) - Investors in Asia bought the Japanese yen, sold South Korean stocks and stayed away from volatile assets on Monday, reacting to opinion polls showing Democratic candidate Hillary Clinton's lead over her Republican rival Donald Trump narrowing further in the U.S. presidential election.
The subtle shift in trading positions came after Friday's unexpected revelation that Federal Bureau of Investigation Director James Comey had written to the U.S. Congress informing it that the agency is again reviewing emails related to the private server Clinton used when she was secretary of state.
Clinton's lead over Trump had been narrowing even before the email controversy resurfaced. News of the fresh email discovery, coming in the final days of the White House race, caused investors to further pare their bets on a Clinton win and price for more volatility.
"The market doesn't seem to be viewing James Comey's letter as a big enough deal to install Trump in the White House, but is pricing in a little more risk," said Sean Callow, a currency strategist with Westpac in Sydney.
"Our strategy this week would be to prepare for increased volatility over the next 10 days."
As was the case with Britain's Brexit vote in the middle of this year, investors were unsure how to trade the FBI's review, and whether it would in any way change expected outcomes in the election.
That uncertainty played out in the U.S. dollar which fell initially on Friday but held its ground against the emerging Asian currencies.
An ABC News/Washington Post poll released on Sunday showed Clinton with a statistically insignificant 1-point national lead on Trump.
The dollar inched up against the yen <JPY=>, remaining just below Friday's three-month high of 105.54.
But against the Mexican peso <MXN=D2>, which is seen as the best barometer on the markets' view on the U.S. election, it was fractionally lower than Friday's three-week low of 19.1005. The peso has become a proxy for bets on the U.S. election because Mexico is considered to be the most vulnerable to Trump's protectionist policies as the country sends 80 percent of its exports to the United States.
Korean stocks <.KS11>, which are prone to volatility because of their high levels of foreign ownership, fell more than half a percent.
Westpac's Callow said he would consider staying long on the yen, possibly through options. "The yen is a proven winner in turbulent times," he said.
ANZ's senior currency strategist Khoon Goh expects the Singapore dollar and Korean won <KRW=> to react the most in the coming days, given their open economies and the South Korean market's exposure to foreign investment.
"The markets have been forced to revise somewhat the estimate of a possible Trump win, having spent most of the last one month pricing out that risk," said Ray Attrill, global co-head of currency strategy at National Australia Bank. "We were almost at a point where the U.S. election was becoming a non-market factor."
"My view is if we were to have an unexpected Trump victory and a significant short-term bout of global markets risk aversion, you'd still probably expect the U.S. dollar to strengthen on that. Because that's been the case so far."
(Additional reporting by Faith Hung in TAIPEI, Swati Pandey in SYDNEY, Nichola Saminather in SINGAPORE; Editing by Jacqueline Wong)