* Dollar to near 15-near year low vs yen after U.S. data
* Yen caution remains about possible BoJ steps
* Strong UK data lifts sterling, pulls euro off lows
(Adds details, updates prices)
NEW YORK, Aug 19 (Reuters) - The dollar slumped to near a
15-year low against the yen on Thursday after weak U.S.
economic reports fueled concerns about the strength of U.S.
economic recovery and pushed U.S. bond yields lower.
Factory activity in the U.S. Mid-Atlantic region
unexpectedly contracted in August to its lowest level in more
than a year, heightening worries over the sustainability of the
economic recovery. For details, click []
The yen was lower earlier in the global session, with
investors reluctant to chase it higher because of concern about
whether Japanese authorities would take new steps to rein in
the yen's rise.
The dollar's gains were reversed as the New York session
got underway following the U.S. Labor Department data showing
initial claims for state jobless benefits rose to 500,000 in
the latest week. Markets were expecting claims of 476,000
[].
"The Philly Fed number is shockingly bad, resulting in the
U.S. 2-year making new lows in yield," said Douglas Borthwick,
managing director at Faros Trading LLC in Stamford Connecticut.
[].
"The lower yield is playing into the forex markets, as
dollar/yen breaches the 85.00 level. With yields at these lows
the dollar is quickly becoming the funding currency of choice."
Though not inherently bad for the dollar, being a funding
currency further weakens the foreign exchange unit as investors
borrow it, then immediately sell it. This carry trade involves
borrowing in a low yielding currency to buy higher yielding
assets elsewhere.
Countries with low interest rates can have difficulty
attracting foreign investment, reducing the attractiveness of
the currency and eroding economic prosperity.
Midway through the New York trading day, the dollar was
down 0.3 percent at 85.13 yen <JPY=>, off the session low of
84.90 touched after the factory data but still off a 15-year
low of 84.72 yen hit on trading platform EBS last week.
"People are still questioning whether to sell the dollar on
weak U.S. data or buy it on a general move away from risk,"
said Win Thin, senior currency strategist at Brown Brothers
Harriman in New York.
The bank's view is that weakness in the U.S. economy won't
be isolated and will soon affect the euro, said Thin.
EURO GAINS
The euro was 0.1 percent higher against the dollar <EUR=>
at $1.2866 with support at the 100-day moving average around
$1.2776. It again struggled to break through $1.2900 with a
peak of 1.2902. The dollar fell to a seven-month low against
the Swiss franc <CHF=>.
Analysts were cautious on reading too much into any move
given relatively light liquidity during summer vacation months.
The euro came under pressure in early trade after a report
on the website of German magazine Der Spiegel said austerity
steps to fix Greece's debt were harming the Greek economy. For
a link to the article see: http://link.reuters.com/vyf85n
But the currency recovered in tandem with a rise in
sterling <GBP=>, which jumped more than a cent against the
dollar after surprisingly strong retail sales raised hopes the
UK's economic recovery could maintain its momentum.
[] Sterling was up 0.3 percent at $1.5638.
Investors were still watching to see if the Bank of Japan
will take more monetary easing steps -- such as expanding
liquidity -- ahead of a meeting between Prime Minister Naoto
Kan and BOJ Governor Masaaki Shirakawa expected on Monday.
The yen slipped early as rumors circulated that the central
bank would hold an emergency policy meeting. Although sources
later said this was unlikely []. Caution kept the
yen away from 15-year highs versus the dollar.
(Additional reporting by Vivianne Rodrigues and Steven C
Johnson in New York and Jessica Mortimer in London)
(Reporting by Nick Olivari; Editing by Andrew Hay)
