* Dollar falls on Mideast tensions, gloomy outlook
* Pound hits record low vs euro, nears parity
* Swiss franc rises on geopolitical risks
* Commodity currencies catch bid with oil and gold
(Recasts, adds comments, changes byline and dateline, previous
LONDON)
By Vivianne Rodrigues
NEW YORK, Dec 29 (Reuters) - The dollar fell broadly on
Monday, eroded by a grim outlook for the U.S. economy and
concerns Israeli attacks in the Gaza strip will destabilize the
Middle East and threaten oil supplies
.
Sterling extended last week's declines and hit a record low
against the euro, approaching parity with the single currency,
after reports pointed to a further slide in UK home prices in
2009.
The Swiss franc jumped as well as gold and oil prices as
Israeli warplanes warplanes pounded the Hamas-ruled Gaza Strip
for a third consecutive day. []
Investors have generally fled to the dollar in periods of
political uncertainty, although that has changed in recent
months as the U.S. recession has deepened and government bond
yields have sunk to record lows.
"Price action this morning has been driven mainly by a
sudden rise in global risk aversion following the attacks in
Gaza, which in turn led to a spike in oil and gold," said Matt
Esteve, a foreign exchange trader at Tempus Consulting in
Washington D.C.
"The dollar is softer across the board, while the Swiss
franc and most commodity currencies are advancing. In these
low-volume conditions and with the absence of key U.S. data, we
may easily see euro/dollar trading back at 1.44," he said
In morning trading in New York, the euro was 1.7 percent
higher at $1.4293 <EUR=>, its biggest gain in about a week. The
euro traded as high as $1.4361.
The dollar shed 2 percent against the Swiss franc to 1.0469
francs <CHF=>.
Thin holiday trading conditions exacerbated moves, dealers
said.
Commodity currencies including the Norwegian crown <NOK=>
and Australian dollar <AUD=> rose, tracking a jump in oil
<CLc1> and gold <XAU=> prices in the wake of hostilities in the
Middle East. []
Oil prices rose to as high as $42.20 a barrel earlier and
gold prices gained around 1.9 percent to $883 an ounce.
Against the yen, the dollar was down 0.5 percent at 90.27
yen <JPY=> and the U.S. currency sank 1.5 percent versus the
Australian dollar to trade at 69.53.
STERLING DECLINES
The pound tumbled against the euro to a record low of 97.99
pence <EURGBP=> according to Reuters data, as it approached
parity for the first time since the single European currency's
launch in 1999.
"It seems more and more likely that the pound is going to
trade in parity with the euro fairly soon," said Esteve at
Tempus Consulting. "We could trade at those levels as early as
the start of next week."
Trade-weighted sterling <GBP=> fell earlier to 74.2, the
lowest on daily records kept by the Bank of England which date
back to 1990.
The euro was headed for a 33 percent gain versus the pound
this year, its biggest annual advance ever, on speculation a
deepening UK economic slump may prompt the Bank of England to
cut interest rates, which at 2 percent are the lowest since
1951.
Higher interest rates in the euro zone have increased the
euro's appeal against the pound as it has narrowed the yield
spread between euro-zone and UK government bonds.
The yield on 10-year UK bonds <GB10YT=RR> were around 3.114
percent on Monday, near a record low of 3.008 percent hit last
week, while the yield on its euro zone counterpart <EU10YT=RR>
fell to an all-time trough of 2.909 percent.
(Additional reporting by Veronica Brown in London; Editing by
Tom Hals)
