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FOREX-Wary investors boost dlr, yen; US GDP in focus

Published 01/30/2009, 06:27 AM
Updated 01/30/2009, 06:32 AM
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* Poor euro zone, Japan economic data heightens global fears

* 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

(adds quotes, updates prices)

By Veronica Brown

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

The rush to dollar and yen liquidity was reflected in stock market falls with world share prices, as measured by MSCI's all-country index, fell 0.7 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 (ECB) 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 and employment figures earlier on Friday underlined the region's vulnerability.

Consumer prices rose 1.1 percent year-on-year in January, a level last seen in July 1999, down from 1.6 percent in December and 2.1 percent in November. Separate figures showed unemployment rose to 8.0 percent in December.

"The weak inflation and unemployment data highlight the negative outlook for the euro zone economy and how far the European Central Bank is behind the curve," BNP Paribas currency analyst Ian Stannard said.

The euro fell 0.6 percent to $1.2863 after dropping more than 1 percent on Thursday. The single currency also shed 1 percent against the yen to 115.27.

GROWING CONCERN

Worries over a prolonged global economic slump also 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.

The dollar was up a quarter percent versus a basket of six major currencies at 85.718 Yen strength pulled the dollar down 0.7 percent to 89.27 yen.

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.

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.

(Reporting by Veronica Brown; Editing by Victoria Main)

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