* Swiss franc, euro gain on Iran concerns
* Dollar rally vs yen loses steam despite economic data
* Sterling slides on BOE inflation report
(Updates prices, adds quote, changes byline)
By Gertrude Chavez-Dreyfuss
NEW YORK, Feb 16 (Reuters) - The dollar sank on Wednesday
as news Iranian warships were en route to Syria rekindled
geopolitical tensions in the Middle East, sparking a spike in
oil and a surge in traditional safe-haven currencies such as
the Swiss franc.
Technical factors and market positioning also weighed on
the dollar, especially against the euro, as investors holding
short euros got squeezed when the greenback fell and crude oil
rose. The dollar's losses, however, should prove short-lived,
some analysts said, with the currency supported by a recent
spate of positive U.S. economic data.
"The Iran story is certainly escalating the geopolitical
risk," said Greg Salvaggio, senior vice president of capital
markets at Tempus Consulting in Washington.
Israel's foreign minister said moves by two Iranian war
ships to sail through the Suez canal to Syria were a
"provocation" by Tehran. For more, see: []
"We got a move away from the dollar because oil prices went
up after the Iranian news. But we think this is just a
short-term push up in the euro versus the dollar. We love the
U.S. data this morning."
In general, the greenback falls when oil, which is
denominated in dollars, rises in price because it becomes
cheaper for overseas investors holding foreign currencies to
buy crude oil.
Brent oil prices surged to near 2-1/2-year highs on the
Iran news. []
In mid-afternoon trading, the euro rose 0.6 percent against
the dollar to $1.3570 <EUR=EBS>, its second consecutive daily
gain. Investors short the euro tried to push the currency below
$1.3480, the roughly 38.2 percent Fibonacci retracement of the
euro's January to February rally.
The euro got as low as $1.3462 on electronic trading
platform EBS in the wake of Wednesday's positive U.S. data, but
it quickly rebounded.
The Swiss franc, a traditional safe-haven, especially
during times of geopolitical turmoil, rose, pushing the dollar
down 0.8 percent to 0.9596 francs <CHF=>. It soared nearly 1
percent after the news broke.
The franc also gained against the euro <EURCHF=>, which
slipped 0.2 percent.
Meanwhile, the dollar's nearly two-week rally against the
yen came to a halt, with earlier gains erased as U.S. Treasury
yields fell on the Middle East news. U.S. inflation and housing
data sent Treasury yields higher earlier in the session.
[] [ID:nCAT005381
The dollar has outperformed the yen in nine of the past 11
sessions as U.S. Treasury yields factored in inflation. In
mid-afternoon New York trading the dollar was down 0.2 percent
at 83.56 <JPY=>, after rising 0.2 percent earlier in the
session.
Sterling fell sharply as investors revised expectations for
a rate rise after the Bank of England downgraded its economic
growth forecast in its quarterly inflation report, even
asconsumer prices spiked higher.
Sterling <GBP=D4> fell to the day's low of $1.5987,
compared with around $1.6140 before the Bank of England's
quarterly report on inflation was released. It was last at
$1.6090, down 0.2 percent.
(Additional reporting by Julie Haviv; Editing by Dan Grebler)
