* Dlr falls vs euro and Swiss franc on Middle East tensions
* Sterling hovers near record low vs euro, eyes parity
* Yen expected to stay strong vs dollar in 2009
By Kaori Kaneko
TOKYO, Dec 30 (Reuters) - The dollar dropped on Tuesday as
the Israeli attacks on Hamas in Gaza raised concerns about oil
supplies in the Middle East and spurred buying of traditional
safe-haven assets, including the Swiss franc.
Israeli warplanes attacked Hamas government buildings and
other symbols of the Islamist group on Tuesday in the fourth
day of the fiercest air offensive in Gaza in decades.
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Analysts said they expect the conflict to continue to exert
pressure on the dollar. The dollar has traditionally been a
shelter for investors in times of geopolitical risks, but that
has changed somewhat as the United States has tumbled into
recession and its bond yields have become razor thin.
"The market's focus is shifting from the unwinding of yen
carry trades and U.S. financial worries to geopolitical risks,"
said Toru Umemoto, chief FX strategist at Barclays Capital.
"But as there are fewer market participants now, the market
has not yet fully digested those risks," he said.
The euro rose 0.5 percent against the dollar from late U.S.
trading on Monday to $1.4054 <EUR=>.
The dollar fell 0.4 percent against the Swiss franc to
1.0548 francs <CHF=>, and slipped 0.3 percent against the yen
to 90.29 yen <JPY=>.
Sterling slipped 0.7 percent against the euro from late
U.S. trade on Monday to 97.20 pence <EURGBP=D4>. On Monday,
sterling hit a record low of 98.00 pence against the euro,
according to Reuters dealing system data.
Sterling is nearing parity versus the euro on expectations
that the bleak outlook for the British economy will mean more
aggressive rate cuts than in the euro zone.
YEN EYES RECORD PEAK IN 2009
The yen has risen roughly 19 percent against the dollar
this year, according to Reuters data, its biggest annual
percentage gain since 1987 when it jumped 23 percent against
the greenback.
The yen rallied as the global credit crunch and worries of
a deep worldwide recession prompted investors to unwind risky
carry trades, in which low-yielding currencies like the yen are
sold to invest in higher-yielding currencies and assets.
The dollar extended its losses against the yen earlier this
month, hitting a more than 13-year low of 87.13 yen on trading
platform EBS, after the U.S. Federal Reserve slashed key
interest rates to a range of zero to 0.25 percent.
Traders said the dollar could fall even further against the
yen next year.
"Since there is hardly any interest rate differential
between Japan and the United States, and the United States is
under a heavy debt burden, the trend of yen strength against
the dollar is expected to continue," said Yuji Saito, head of
the FX sales department at Societe Generale.
Saito said the dollar could fall below its post-World War
Two low of 79.75 yen hit in 1995 and slide to as low as 75 yen
in 2009. The upper end of the dollar's range in 2009 is likely
to be 110 yen.
Such a slide in the dollar could prompt yen-selling
intervention by Japanese authorities. Although Japan has stayed
out of the market since last intervening in March 2004,
officials have recently expressed concern over the impact of
the yen's strength, which makes Japanese goods less competitive
overseas and hurts Japan's export-dependent economy.
All data taken from Reuters calculated from the levels at
2130 GMT in the previous New York session.
Last US Close Pct YTD Pct 2007
Dec. 29 Change Change
Close
-------------------------------------------------------------
Euro/dlr <EUR=> 1.4037 1.3976 +0.44 -3.78
1.4589
Dlr/yen <JPY=> 90.310 90.560 -0.28 -18.88
111.33
Euro/yen <EURJPY=R> 126.77 126.55 +0.17 -21.93
162.39
Dlr/swiss <CHF=> 1.0547 1.0592 -0.42 -6.95
1.1335
Stg/dlr <GBP=> 1.4445 1.4491 -0.32 -27.22
1.9847
Dlr/cad <CAD=> 1.2208 1.2177 +0.25 +22.52
0.9964
Aus/dlr <AUD=> 0.6891 0.6870 +0.31 -21.31
0.8757
Nzd/dlr <NZD=> 0.5800 0.5783 +0.29 -24.34
0.7666
Aus/yen <AUDJPY=R> 62.230 62.240 -0.02 -36.15
97.460
Nzd/yen <NZDJPY=R> 52.370 52.340 +0.06 -38.60
85.300
Stg/yen <GBPJPY=R> 130.44 131.21 -0.59 -41.04
221.22
Aus/Nzd <AUDNZD=R> 1.1868 1.1871 -0.03 +3.96
1.1416
(Additional reporting by Masayuki Kitano, Eric Burroughs;
Editing by Chris Gallagher)
