FOREX-Yen gains on Japan exporter bids, dlr awaits US GDP

                                
 * Yen recovers after fall on demand from Japan exporters
                                
 * ECB rate view supports euro, hovers near 2-mth high vs USD
 * Dollar sentiment fragile ahead of U.S. GDP data
                                
 
                                
 (Adds comment, updates prices)
                                
 By Naomi Tajitsu
                                
 LONDON, Jan 28 (Reuters) - The yen rose on Friday as demand
from Japanese exporters and speculators helped the currency to
recoup some losses from a broad sell-off triggered the previous
day by a cut to the country's credit rating.
                                
 The euro was steady near a two-month high versus the dollar,
and analysts said the U.S. currency may struggle if growth data
later in the day fails to change the view that Federal Reserve
interest rates are set to remain at rock-bottom levels.
                                
 Analysts said the Standard and Poor's downgrade to AA-
highlighted Japan's fiscal problems and could further sting the
yen, which was being boosted by short-term demand and negative
dollar sentiment.
                                
 "From a fundamental point of view dollar/yen at 82-83 yen is
too low, but short-term market forces are constantly putting a
drag on," said Ulrich Leuchtmann, currency strategist at
Commerzbank in Frankfurt.
                                
 "The fiscal situation is an ongoing risk for dollar/yen, and
at some point it will correct significantly higher, but now is
not the right time for such a move." He said speculators were
taking profits on long-term positions to sell the yen.
                                
 Analysts said dollar sentiment would remain sluggish in
light of the U.S. central bank's decision this week to keep
monetary policy unchanged, while indicating it was in no rush to
cut short its economic stimulus measures.
                                
 Investors awaited U.S. GDP data due at 1330 GMT, which is
forecast to show annualised growth of 3.5 percent in the fourth
quarter, up from 2.6 percent in the third.
                                
 The dollar <JPY=> lost 0.8 percent on the day to 82.20 yen,
pulling back from a rally to 83.22 yen on Thursday. Traders said
a triggering of stop-loss orders around 82.50 yen led the dollar
lower. The yen also advanced against the euro and sterling
<EURJPY=R> <GBPJPY=R>.
                                
 But some in the market said investors are positioning for
yen weakness in the options market, after the bias in dollar/yen
risk reversals continues to creep towards yen puts -- bets the
yen will fall <JP1MRR=ICAP>. [ID:nLDE70Q1U8].
                                
 
                                
 HAWKISH ECB
                                
 The euro <EUR=> held steady against the dollar at $1.3730,
just below a two-month high of $1.3760 hit on Thursday, when a
warning from European Central Bank policymaker Lorenzo Bini
Smaghi on imported inflation fuelled speculation of a euro zone
interest rate rise. [ID:nLDE70Q1EY] 
                                
 Bini Smaghi's hawkish comment added to earlier indications
that the ECB will likely tighten well ahead of the Fed.
                                
 Implied interest rate futures based on overnight index swaps
<ECBWATCH> are fully pricing in ECB rates at 1.25 percent by
October, compared with their current record low of 1.0 percent.
Fed rates are not expected to rise in 2010 from 0-0.25 percent.
                                
 "The euro continues to be supported by the hawkish tone
coming from the ECB, with markets now pricing in more than one
full 25 basis point hike by year-end," said Tom Levinson,
currency strategist at ING.
                                
 "Barring a nasty return of sovereign-debt related concern,
the likelihood of the ECB leading the Fed by some distance in
its tightening cycle suggests EUR/USD can rise further."
                                
 Broad, negative dollar sentiment kept the U.S. currency at
77.685 versus a currency basket <.DXY>, hovering near 77.594 hit
on Thursday, a level last seen in November.
                                
 Analysts expect higher interest rates in other countries
will keep the dollar on its downward trend, but some argue
geopolitical tensions may offer support if political uncertainty
in North Africa triggers risk aversion.
                                
 Investors eyed developments in Egypt, with the Egyptian
pound hitting its weakest in at least six years versus the
dollar <EGP=> as protestors took to the streets to oppose the
country's authoritarian rule. Earlier this month, a revolt
forced Tunisia's leader to flee the country. [ID:nLDE70Q2OZ]
                                
 "(Tension in Egypt) could spread to other parts of the
region and that would continue to create uncertainty, providing
a floor for the dollar," said Henrik Gullberg, director of
currency strategy at Deutsche Bank.
                                
(Additional reporting by Anirban Nag)
                                
(Editing by John Stonestreet)