* Dollar pares losses on Iraq-Iran tensions
* Swiss franc pares gains;, euro at 1.4992 francs <EURCHF=>
* German Ifo index slightly firmer than expected
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By Tamawa Desai
LONDON, Dec 18 (Reuters) - The dollar was lacklustre against
most major currencies apart from the yen on Friday as share
prices recovered, while the Swiss franc pared gains after
surging earlier in the session in thin trade.
The greenback, however, pared its losses against the euro
late in European morning after an Iraqi official said Iranian
troops had briefly entered Iraqi territory on Thursday and spent
several hours at an Iraqi oilfield. []
By 1226 GMT, the euro was flat on the day at $1.4351 <EUR=>
after the report, down from around $1.4380 beforehand.
The Swiss franc had risen as investors unwound long euro
positions in the approach to the year-end, helped by rumours of
a coup in Pakistan that were quickly denied and by stop-loss
orders which propelled it up. []
The euro fell to 1.4910 francs, its weakest level since
March when the Swiss National Bank (SNB) intervened to sell
francs after announcing steps to fight deflation.
It was last at 1.4992 francs <EURCHF=R>, down 0.1 pct on the
day, just shy of the SNB's perceived threshold of 1.50 francs.
"The markets are fairly illiquid, which is exaggerating
moves," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFJ. "Momentum is key, and you don't want to go
against momentum right now."
"There may not be much benefit for the SNB to intervene now,
given the markets are so illiquid," he added.
But traders said the euro's rebound against the Swiss franc
was partly on expectations the SNB would step in to sell its
currency.
The euro also recovered ground after steep falls against the
dollar and yen.
It showed little reaction to the German Ifo institute's
sentiment index which rose to 94.7 in December, slightly higher
than expectations for 94.5, and up from 93.9 the previous month.
[]
"From a historic perspective, the Ifo index is still at a
moderate level. In this context, the ECB is not under pressure
to shift gears on rates in the forseeable future," said Ulrich
Wortberg, economist at Heleba.
The euro had struggled the previous day, falling to a low of
$1.4304, after S&P became the second ratings firm this month to
downgrade Greece.
The pair was on track for its third weekly fall in
sucession.
European stocks <> had risen 0.2 percent by midday
trade, while U.S. stock futures <SPc1> were up 0.4 percent
DOLLAR, YEN PRESSURED
The dollar index <.DXY>, a gauge of the greenback's
performance against six major currencies, fell 0.2 percent to
77.545, off Thursday's peak of 77.943 which was its highest
since early September.
Yen crosses, which fell sharply in the wake of euro/Swiss
franc's fall, came off their lows on short-covering.
The euro was up 0.7 on the day at 129.80 yen <EURJPY=R>,
sterling was also up 0.6 percent at 146.21 yen <GBPJPY=R> and
the Australian dollar rose 0.7 percent <AUDJPY=R>.
The dollar was up 0.4 percent at 90.23 yen <JPY=>.
The Bank of Japan kept interest rates steady as expected,
but in a surprise move, changed its definition of long-term
price stability, saying it would not tolerate zero inflation or
falling prices. []
BOJ Governor Masaaki Shirakawa said the new definition of
long-term price stability did not mean monetary policy would be
guided by short-term price moves alone. []
"While the shared concern about the deflation by both the
government and the BoJ should limit the upward pressure on the
yen, their commitment remains uncertain and poses near-term risk
of disappointment and a rebound of the yen," said Barclays
analysts in a note.
(Additional reporting by Kaori Kaneko in Tokyo; Editing by Toby
Chopra)
