* Dollar hits 6-1/2-week low vs yen
* Yen boosted by rise in Japan factory output
* Euro erases gains vs dollar after weak U.S. data
* Worries about euro zone, U.S. growth linger
(Updates prices, adds comment, details)
By Steven C. Johnson
NEW YORK, Dec 28 (Reuters) - The dollar set a record low
against the Swiss franc and hit a 6-1/2-week low against the
yen on Tuesday after Japan reported its factory output rose in
November for the first time in six months.
But a decline in U.S. consumer confidence and lingering
worries about Europe's debt crisis helped lift the greenback
against the euro <EUR=>, which swung from a high of $1.3274 to
a low of $1.3094. It was last at $1.3116, down 0.3 percent.
Higher U.S. bond yields, driven up by a weak five-year
Treasury note auction, also helped the dollar rebound against
the euro and pare losses against the yen. For details, see
[]
The dollar fell 0.4 percent to 82.42 yen <JPY=EBS> after
earlier hitting 81.81 yen, its lowest since November, while the
euro hit a 3-1/2-month low of 107.64 yen <EURJPY=>.
A 1 percent jump in Japanese factory output, the first rise
in six months, "certainly has provided a bid to the yen across
the board," said Dean Popplewell, chief strategist of FX
brokerage OANDA in Toronto. []
Traders said the dollar's drift lower in recent days also
reflected year-end repatriation by Japanese exporters. Similar
year-end positioning also helped lift the Swiss franc, with
Swiss corporate buying sending the dollar to a record low
0.9435 francs <CHF=EBS>. It was last at 0.9520 francs, down 0.8
percent from late Monday.
DOUBTS REMAIN FOR 2011
The dollar also traded lower against commodity-linked
currencies such as the Australian and New Zealand dollars, but
some analysts said investors were still wary of taking on too
much risk for fear Europe's debt crisis could worsen or the
U.S. economy could grow more slowly than expected in 2011.
The market expects more euro weakness next year as worries
persist about debt problems in Spain and Portugal, though euro
bears have been frustrated by the currency's firm support for
more than a week at its 200-day moving average below $1.31.
The euro's early rise stopped just shy of $1.3278, the 50
percent retracement of a monthly decline from $1.3500 to
$1.3055 last week. That raised doubts about whether the euro
would reach $1.3330-35, the 61.8 percent retracement of the
December decline, before year-end.
"As much as investors want to deny it, there are still
lingering concerns about the impact of Europe's debt crisis,
about a sluggish U.S. recovery and about Chinese rate hikes,"
said Kathy Lien, research director at GFT Forex in New York.
For more on U.S. economic data, see []
The dollar often attracts a safe-haven bid when investors
grow averse to risk.
INTEREST RATES AND THE DOLLAR
On the other hand, the dollar has benefited from this
month's rise in bond yields, which fed expectations that U.S.
growth will quicken and long-term interest rates rise in 2011.
While the Treasury had trouble finding private buyers for
$35 billion in five-year notes on Tuesday, with dealers taking
a majority of the debt on offer, UBS currency strategist
Geoffrey Wu expects things to go more smoothly next year.
January "tends to be a very good month for the U.S. in
attracting overseas funding, especially into Treasuries, and
the current lack of demand for euro zone securities suggests
little competition for U.S. government paper," Yu wrote.
But if U.S. fiscal health worries make it harder for the
Treasury to find buyers, that could hurt the dollar.
"Where you would get worried is if you see a sell-off in
the dollar coupled with higher rates," said Andrew Busch,
global currency strategist at BMO Capital Markets. "That can
become self-fulfilling."
(Additional reporting by Wanfeng Zhou in New York and Jessica
Mortimer in London; Editing by Dan Grebler)
