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FOREX-Dollar hits fresh lows on Fed stimulus view; yen surges

Masayuki Kitano
Wednesday, 23 Oct 2013 | 2:23 AM ET

* Dollar/yen falls, Aussie/yen down more than 1 pct

* Fall in China and Tokyo shares dents risk sentiment

* Aussie down from 4-1/2 mth high set earlier

* Dollar index touches 8-mth low, euro/dlr sets 2-year high

* Weak U.S. jobs data cements view Fed stimulus to stay

SINGAPORE, Oct 23 (Reuters) - The dollar set an eight-month low versus a basket of currencies on Wednesday after weak U.S. jobs data cemented expectations for the Federal Reserve to keep its stimulus in place until next year, while the yen surged as risk sentiment took a hit.

The dollar touched a fresh two-year low versus the euro in the wake of the disappointing jobs data, and extended its losses versus the yen in the Asian afternoon as a drop in regional shares dented risk sentiment. Chinese equities fell 1.2 percent.

The dollar fell to as low as 79.137 against a basket of currencies, nearing this year's trough of 78.918 set in early February.

The greenback came under pressure after data the previous day showed U.S. employers added far fewer workers than expected in September, suggesting the economy may have lost some momentum even before the 16-day partial shutdown of the federal government this month.

"It's becoming difficult for the Federal Reserve to reduce its stimulus this year," said Shinichiro Kadota, currency strategist at Barclays.

The euro rose to as high as $1.3793 on trading platform EBS, just slightly exceeding Tuesday's peak to reach its highest level since November 2011. The euro last fetched $1.3773, down 0.1 percent on the day.

A majority of U.S. primary dealers polled by Reuters now believe the Federal Reserve will not start cutting its current $85 billion a month bond buying until March.

"I think there's certainly a high possibility that dollar weakness might extend a bit further, but I'm not really sure that it changes the medium-term dollar picture," said Sim Moh Siong, FX strategist for Bank of Singapore.

In the near-term, the dollar could see further weakness against other major currencies such as the euro and sterling, Sim said, adding that the euro may rise towards levels around $1.39.

One near-term focal point is the Fed's Oct. 29-30 policy meeting, which could provide clarity on whether there has been any substantial change to Fed policymakers' views on the economy, Sim added.

The dollar fell 0.8 percent against the yen to 97.34 yen . The dollar is now testing support at its 200-day moving average, now at about 97.27 yen.

The yen rose broadly, with the euro falling 0.9 percent to 134.09 yen, down from Tuesday's four-year high of 135.52 yen.

The Australian dollar slid 1.3 percent to 93.96 yen , down from a four-month high of 95.67 yen set on Tuesday.

Earlier on Wednesday, the Australian dollar had scaled a 4-1/2 month high against the U.S. dollar after a higher-than-expected domestic inflation reading reduced the chances of further interest rate cuts from Australia's central bank.

The Aussie rose to as high as $0.9758, its highest level since early June. The Aussie, however, later reversed course and turned negative, and was last down 0.6 percent on the day at $0.9654.