* Investors pare back huge bearish bets on euro, sterling
* U.S. retail sales beat expectations
* Euro zone industrial output rises
* Chances Yellen to become Fed vice-chair weighs on dlr
(Recasts, updates prices, adds comment, byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 12 (Reuters) - The dollar dropped to a
one-month low against the euro and a two-week trough versus
sterling on Friday, as investors pared back large bearish bets
on the two European currencies following strong euro zone
economic data.
The biggest monthly increase on record in euro zone
industrial output in January and an upward revision of figures
for December also prompted a modest increase in risk appetite.
[]. The data gave traders further excuse to cover
near-record euro short positions, or bets that the euro had
room to fall, to prevent losses.
"What we're seeing here is probably corrective strength in
the euro and sterling. We had very large positions in these
currencies so they are due to bounce anyway," said Nick
Bennenbroek, head of FX strategy at Wells Fargo in New York.
And we got some positive news on these currencies, which
was a convenient excuse for these to gain."
In the case of sterling, analysts also found reason to
reduce substantial short trades on the currency -- the largest
so far since January 1999 -- amid an improving political
backdrop in Britain.
An online poll by Angus Reid Public Opinion showed
Conservatives are well ahead of the ruling Labour Party,
contrasting with other surveys showing the race too close to
call. See [] The main concern is that the UK
election -- expected in May -- could result in a hung
parliament, potentially hampering any incoming government's
efforts to cut the UK's ballooning budget deficit.
In early afternoon New York trading, the euro was up 0.7
percent at $1.3756 <EUR=>, hitting session peaks just shy of
$1.38, the highest since Feb. 11, according to Reuters data.
An unexpectedly strong U.S. February retail sales data
briefly boosted the dollar versus the yen and added to optimism
about the world's biggest economy. More details click,
[]
The dollar was flat at 90.54 yen <JPY=>, rising to a
session peak after the retail sales data. The yen is down 1.8
percent versus the dollar so far this month.
Traders said the yen's falls may be slowed by repatriation
flows ahead of Japan's financial year-end on March 31.
Such flows by Japanese firms may hit a record this year,
helped by a tax break to encourage firms to repatriate
profits.
Chances of a policy dove being named vice chair at the U.S.
central bank also weighed on the dollar, analysts said. Such a
move could slow the normalization of the Federal Reserve's
monetary policy.
San Francisco Federal Reserve Bank President Janet Yellen
is a leading contender to be nominated to replace Donald Kohn
as vice chairman of the U.S. Federal Reserve, the White House
said on Friday. [].
Sterling, meanwhile, was up 0.8 percent against the dollar
<GBP=D4> at $1.5184, off an earlier high of $1.5218.
The euro was down 0.3 percent against the pound <EURGBP=D4>
at 90.54 pence.
(Additional reporting by Nick Olivari; Editing by Andrew Hay)
