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FOREX-Risk-wary investors favour yen, dlr ahead of US GDP

Published 01/30/2009, 03:58 AM
Updated 01/30/2009, 04:00 AM
BARC
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* Risk aversion buoys dollar, yen as poor data spooks

* U.S. growth seen at weakest in 26 years

* World stocks shed 0.6 percent

* NZ dollar hits six-year low vs U.S. dollar

(Changes dateline, byline, adds quotes, updates prices)

By Veronica Brown

LONDON, Jan 30 (Reuters) - Growing investor caution towards risk fuelled broad dollar and yen gains on Friday, with poor economic data concentrating minds on deepening global concerns ahead of key growth figures later in the day.

The rush to dollar and yen liquidity was hastened earlier in the global session by falling Asian stocks, with European shares following suit early. World stocks, as measured by MSCI's all-country index, fell 0.6 percent on the day.

The euro stayed under pressure, having taken a hit the previous day as billionaire investor George Soros told an Austrian newspaper the currency may not survive without a European Union plan to deal with toxic assets.

European Central Bank President Jean-Claude Trichet's comment that the ECB could push interest rates below 2 percent also kept the currency on the back foot.

Euro zone inflation figures due at 1000 GMT are expected to show comsumer price growth slowed to 1.4 percent on the year from 1.6 percent previously, although lower-than-expected Spanish inflation suggests it may be lower than forecast.

Worries over a prolonged global economic slump increased as government data showed that Japan's industrial output plunged 9.6 percent in December, the biggest drop on record.

The data came ahead of the U.S. government's first snapshot of the economy in the fourth quarter, which is expected to show it at its weakest in 26 years.

"It seems like everywhere you turn there is a frightful batch of data," said Phyllis Papadavid, currency strategist at SG in London.

"I think its a confirmation of what we've been concerned about in terms of the pace of the downturn in the global economy and clearly the FX market is reacting to it," she added.

By 0824 GMT, the dollar was up a quarter percent versus a basket of six major currencies at 85.718, while the euro fell 0.6 percent to $1.2874 after dropping more than 1 percent on Thursday.

The euro shed 1.4 percent against the yen to 114.88, while yen strength pulled the dollar down 0.7 percent to 89.27 yen.

The New Zealand dollar struck a six-year low against the U.S. dollar at $0.5077, according to Reuters data, after Reserve Bank of New Zealand Governor Alan Bollard said there was room for more interest rate cuts.

The kiwi later recovered most of the day's loss to stand at US$0.5105 but sank 1.4 percent to 45.61 yen. It struck an eight-year low of 45.03 yen last week.

The New Zealand central bank cut interest rates on Thursday by an aggressive 150 basis points to a record low of 3.5 percent to boost an economy deep in recession.

U.S. gross domestic product, due at 1330 GMT, is forecast to show a 5.4 percent decline on an annualised basis, hit by plunging consumer spending as unemployment swelled.

"If U.S. GDP comes out much weaker than expected, risk aversion would increase and the yen would be the beneficiary," said Toru Umemoto, chief FX strategist, Japan, at Barclays Capital.

"Bigger-than-expected negative U.S. growth will have a negative impact on the global economic growth."

(Additional reporting by Rika Otsuka in Tokyo)

(Reporting by Veronica Brown; Editing by Victoria Main)

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