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FOREX-Yen, franc and euro sought in risk-asset rout, Aussie trounced

Hideyuki Sano
Friday, 24 Jan 2014 | 1:31 AM ET

* China, EM worries spark selloff in risk assets

* Euro helped by strong business data, rising c/a surplus

* Swiss franc benefits from country's move to dampen housing boom

* As EM currencies savaged, Aussie & loonie also hit hard

* Dollar not helped by fall in U.S. bond yields

TOKYO, Jan 24 (Reuters) - The yen, Swiss franc and euro held firm on Friday, having charged higher overnight as worries about a slowdown in China and turmoil in some emerging markets spurred demand for safe-haven currencies.

In the face of a nervous market, comments from a Reserve Bank of Australia policymaker that the Australian dollar had not fallen far enough drove the currency dollar to 3 1/2-year lows.

Thursday's weak Chinese manufacturing data rekindled concerns of slower growth in China as Beijing seeks to curb credit-fuelled investment and turn the economy toward consumption.

"China is, in a way, the kingpin of emerging markets. When the Chinese economy suffers, so do a lot of emerging currencies," said Sho Aoyama, senior market analyst at Mizuho Securities in Tokyo.

"The other side of the coin is, when investors avoid risk, they buy currencies backed by a current account surplus", he added. Data published on Thursday showed the euro zone current account surplus hit a record high in November.

The dollar fell more than 1 percent against the yen and Swiss franc on Thursday, reaching a two-week low of 102.97 yen and a three-week low of 0.8964 Swiss francs.

The dollar last stood at 103.18 yen, down slightly from late U.S. levels. Against the Swiss currency, it fetched 0.8970 franc.

The Swiss franc had additional support from the Swiss government's decision to raise banks' capital requirements for their mortgage books to dampen Switzerland's housing market boom.

The measure, seen as a balancing act to curb asset bubbles while maintaining the franc's peg to the euro, suggested Switzerland could come under more pressure to tighten its monetary policy in the future.

The euro held at $1.3683, having jumped 1.1 percent and rising as far as $1.3699 at one point on Thursday, a near two-week high.

Helping the euro was the Markit's gauge of euro zone business activity, which jumped to 53.2 in January from 52.1 last month, beating all forecasts in a Reuters poll of 25 economists and reaching its highest reading since mid-2011.

In contrast, the dollar nursed heavy losses after suffering its biggest one-day fall in four months against a basket of major currencies, undermined by a drop in U.S. benchmark yields to a six-week low.

The dollar index was last at 80.518, having skidded nearly 1 percent on Thursday.

EM BLUES

A number of emerging economy currencies came under pressure, with the Turkish lira hitting a record low against the dollar, the South African rand slumping to a 5-1/2 year trough and the Russian rouble falling to its weakest in nearly five years.

The currencies of Brazil, Venezuela and Mexico took a beating as well.

This is partly because many still suspect the Federal Reserve will continue to unwind its bond-buying stimulus at next week's policy meeting.

That move is seen as having potential to hurt many markets that had long-benefited from the floods of cash the Fed's huge money-printing programme has created.

"We would be cautious of fading this risk-aversion move given the scale of some of the losses in commodity and emerging market currencies, and the euro may stay better supported in the near-term as euro-funded risk positions are covered," analysts at BNP Paribas wrote in a note to clients.

Worst-hit was the Argentinian peso, which suffered its sharpest fall since the country's 2002 crisis as the country's central bank gave up on defending the currency.

"The currency has been falling for most of the last couple of years anyway so few people would have cared. But it was a symbolic move," said Takako Masai, a manager of forex at Shinsei Bank in Tokyo.

"We will have to see whether this risk-off trade will subside today. If it does, then I wouldn't be too worried about it spiralling into more sinister moves," she said.

Risk aversion hit commodity currencies as well.

The Australian dollar fell to as low as $0.8689 after Reserve Bank of Australia board member Heather Ridout was reported as saying the currency had not fallen enough and that the currency at 80 U.S. cents would be a "fair deal" for the economy.