* Yen gains, dollar supported as risk appetite decreases
* Euro down 1 pct vs yen as regional shares fall
* Optimism about U.S. monetary, fiscal measures fades
(Changes byline, adds quote, update prices)
By Naomi Tajitsu and Phakamisa Ndzamela
LONDON, Jan 29 (Reuters) - The yen gained broadly and the
dollar was supported on Thursday as struggling share prices kept
risk aversion intact, despite the latest U.S. monetary and
fiscal stimulus measures.
The euro retreated from gains made earlier in the week as
the single currency was weighed by a 1.3 percent fall in
European shares <>. Stocks snapped a three-day winning
streak, dragged down by weak bank shares.
"The optimism that has been seen developing over the course
of the past week is now starting to fade," said Ian Stannard,
senior foreign exchange strategist at BNP Paribas in London.
"The equity markets' rebound seems to be running out of
steam ... So that's why we're probably likely to see the dollar
gaining some support now and we're looking for the euro to edge
lower once again."
The Fed kept interest rates near zero on Wednesday as
expected, and said it was prepared to buy long-term Treasury
debt if that would help improve credit conditions
[].
Although that indicated a step forward for the Fed to buy
Treasuries, markets were disappointed as it was not likely to
happen soon, and the view that this may slow the recovery of
global markets kept investors risk averse, buoying the dollar.
At 1226 GMT, the euro was down 0.2 percent at $1.3177, after
hitting a session low of $1.3029 <EUR=>. Against the yen, it was
down 0.9 percent at 117.70 yen <EURJPY=R>.
The single currency slipped on comments by European Central
Bank President Jean-Claude Trichet, who told CNN that the
central bank could cut key euro zone rate below the current two
percent as well as more unconventional measures. []
"A lot of people thought that the ECB was ruling out
quantitative easing, but Trichet's comments suggest otherwise,"
said Adarsh Sinha, currency strategist at Barclays in London,
adding that the euro would stay on the back foot.
Speaking at the World Economic Forum in Davos, Switzerland,
Trichet on Thursday also said that markets were in a period of
continuing correction [].
The euro pared some losses against the dollar, boosted by a
0.7 percent rise in sterling <GBP=D4> to $1.4336.
Demand from a UK bank to sell euros for sterling had
provided a boost to the pound, helping it to recover from early
losses. The euro <EURGBP=D4> fell 0.7 percent to 92.92 pence.
The dollar fell 0.7 percent to 90.65 yen <JPY=>, pulling
away from a one-week high of 90.79 yen hit on trading platform
EBS on Wednesday. The yen rose broadly, pushing the Australian
<AUDJPY=R> and New Zealand dollars <NZDJPY=R> each down roughly
1.5 percent on the day.
WEAK EURO ZONE
Data on Thursday showed euro zone sentiment indexes came in
somewhat higher than expected, although they were at record lows
in January. Underlining weakness in the euro zone economy was
data showing that German unemployment posted its biggest
increase in nearly four years in January [].
Euro zone economic sentiment fell to 68.9 in January, higher
than forecasts of 65.8 but still the lowest since records began
in 1985 []
Weak euro zone figures were likely to cap any significant
gains in the euro against the dollar, analysts said.
The dollar and yen have been viewed as a safe-haven currency
amid the global financial crisis, and it often fluctuates
depending on perceived shifts in investors' tolerance for risk.
Currencies have also been closely tracking moves in equity
markets, with lower share prices feeding into risk aversion.
U.S. S&P futures fell nearly 1.0 percent <SPc1>, pointing
to lower U.S. equity markets, which had surged on Wednesday in
part on speculation the Obama administration would set up a
so-called "bad bank" to relieve banks of toxic assets.
Separately, U.S. President Barack Obama scored his first
legislative victory with passage of an $825 billion economic
stimulus package but every Republican who voted opposed the
bill. []
Meanwhile, the New Zealand dollar fell to around $0.5127
<NZD=D4>, the lowest since December 2002 on Reuters data, after
New Zealand's central bank slashed interest rates by 150 basis
points to a record low of 3.5 percent, and left the door open
for further, smaller cuts. []
(Editing by Andy Bruce)
