* Yen pares losses as traders take profits
* Euro down 0.6 pct at 123.37 yen after hitting 7-wk high
* S&P says expects more sovereign downgrades this year
* German economy posts record contraction; UK GDP unrevised
(Recasts, changes byline)
By Tamawa Desai
LONDON, Feb 25 (Reuters) - The yen trimmed losses against
other major currencies on Wednesday as traders took profits from
a recent bout of yen-selling, while lacklustre economic data
supported the dollar.
The dollar was also boosted after the head of sovereign
ratings at Standard & Poor's said he expected more sovereign
ratings downgrades than upgrades this year compared with a year
ago []
The market has been focusing on Japan's economic and
political ills and a long-held link between rising share prices
and a stronger yen has been broken.
Latest data showing a sharp drop in Japanese exports
prompted the euro to a fresh seven-week high of 125.17 yen
<EURJPY=> but the pair was unable to sustain gains.
By 1148 GMT, the euro was down 0.6 percent at 123.40 yen.
The yen also recovered against other pairs, with sterling
falling more than one percent on the day to 138.56 yen after
jumping to 141.81 -- its highest this year <GBPJPY=R>.
The dollar was down 0.2 percent at 96.56 yen <JPY=>.
While the yen-selling momentum lost some steam, the Japanese
currency remains vulnerable, analysts said.
"The yen continues to weaken and it will come under
increasing pressure," said Ian Stannard, senior currency
strategist at BNP Paribas.
Meanwhile, the dollar was supported as a grim economic
outlook remains intact. The dollar was up 0.6 percent against a
basket of currencies at 87.294 <.DXY>
The U.S. currency had started the day on the back foot
against the euro as equity markets took heart from U.S. Federal
Reserve Chairman Ben Bernanke's signal that bank
nationalisations were not imminent.
But analysts said the rally in riskier assets, which also
bolstered currencies such as sterling and the Australian dollar,
was looking shaky, although European shares were still up 0.4
percent by midday trade <>.
"The market is struggling for direction today and a lot will
depend on whether U.S. equities can hold on to gains," CMC
Markets analyst James Hughes said.
"The focus can easily switch back to how bad the situation
with the banking sector and the global economy is, and this
tends to lead to dollar strength," he said.
U.S. S&P stock futures were down 0.6 percent <SPc1>,
indicating a lower open on Wall Street.
Data on Wednesday showed Germany's economy contracted by a
record 2.1 percent in the fourth quarter, dragged down by
foreign trade. See [].
Separately, revised data showed Britain's economy shrank an
unrevised 1.5 percent in the three months to December.
Sterling fell to a session low below $1.44 <GBP=>.
(Additional reporting by Jessica Mortimer; editing by Stephen
Nisbet)
