* Swiss franc and yen gain on safe-haven demand
* Concerns over euro zone periphery remain, spreads widen
* Euro/Swiss franc under pressure as funds sell
(Releads, adds quote, detail)
By Anirban Nag
LONDON, Aug 16 (Reuters) - The yen and the Swiss franc led a
broad rally in safe-haven currencies on Monday, while the euro
pared gains against the dollar on heightened sensitivity to risk
in euro zone bond markets.
The premium that investors demand to hold 10-year Irish and
Greek government bonds rather than German Bunds widened on
Monday, while the cost of insuring their debt against default
also increased, highlighting investors' concerns about
peripheral euro zone economies.
Benchmark 10-year German yields <DE10YT=TWEB> earlier hit a
record low on worries about a faltering global economic
recovery. The Swiss franc and the Japanese yen, both used to
fund leveraged carry trades, are usually sought in times of
market stress.
"Spreads in the peripherals are wider, financial stocks are
down and the Swiss franc is outperforming on safe-haven demand,"
said Kenneth Broux, Markets Strategist at Lloyds Banking Group.
By 1128 GMT, the dollar was down more than 1 percent to
1.0400, having tested a one-week low of 1.0352 francs <CHF=>
earlier in the session. European banking stocks traded down
around 0.8 percent <.SX7P>.
The euro was trading 0.6 percent lower against the Swiss
franc <EURCHF=> at 1.3325, having dropped to 1.3268 for the
first time since July 8. Traders said funds were lightening
positions in the euro/Swiss franc cross with sparse liquidity in
currency markets exacerbating the fall.
The sell-off in the euro/Swiss franc cross saw the euro trim
gains against the U.S. dollar. It fell to $1.2810 <EUR=> from a
session high of $1.2836 and not far from one-month lows of
$1.2734 hit in Asian trade on trading platform EBS.
That marked the sixth straight day of lower daily troughs
for the single currency.
JAPAN STRUGGLING BUT YEN FLOURISHING
The euro also gave up earlier gains against the yen
<EURJPY=>, falling 0.3 percent to drop to 109.62 yen and not far
from one-month lows of 109.25 yen struck in Asian trade.
The yen's gains came despite weaker-than-expected Japanese
gross domestic product (GDP) numbers. Anaemic economic growth
and a rising currency are likely to pose a headache to Japanese
policymakers in coming days.
Investors are wary of a possible meeting between Prime
Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa
later this week to discuss the currency's strength and possible
responses. []
Some traders said Japan's weaker second-quarter GDP data
could increase incentives for Japanese authorities to curb the
yen's strength.
The dollar was down 0.8 percent at 85.48 yen <JPY=> with
investors like hedge funds still preferring to go short on the
greenback and long on the yen as U.S. yields continued to
tumble.
Latest data from the Commodity Futures Trading Commission
showed that speculators had extended net long positions in the
week to August 8 to 52,478 contracts from 47,998 a week earlier.
[].
"The yen will not be driven by Japanese data but whether
U.S. yields will head lower," said Gareth Berry, currency
strategist at UBS in Singapore. "Things are pretty balanced
right now but there is a general caution about risk appetite."
The yen rose to its highest levels in 15 years versus the
dollar last week, in a move driven by falling U.S yields.
The 10-year U.S. Treasury yield <US10YT=RR> fell to a fresh
16-month low on Monday as weak economic numbers continued to
raise concerns about a double-dip recession in the world's
largest economy.
(Additional reporting by Neal Armstrong, Editing by Andrew
Heavens)
