* Aussie falls as Egypt riots hit risk appetite
* Dollar, Swiss franc, yen seen favoured
* Analysts say Egypt unrest could be repeated elsewhere
By Hideyuki Sano
TOKYO, Jan 31 (Reuters) - The euro dipped and high-yielding
currencies fell on Monday as investors tried to exit riskier
positions on fears that unrest in Egypt could spread across the
Middle East.
As street protests in Cairo showed no sign of
abating, investors were increasingly worried that political
upheaval could hit other Arab countries, potentially disrupting
oil production and heightening diplomatic tensions in the
region.
"This will not be limited to Tunisia and Egypt. This could
spread to other countries, which could make the whole Middle
East unstable," said Mitsuru Saito, chief economist at Tokai
Tokyo Securities.
The euro <EUR=> fell as low as $1.3570 on trading platform
EBS, extending its decline further from a two-month high of
$1.3760 marked last week.
The euro later trimmed its losses and last stood at $1.3602,
down about 0.1 percent from late U.S. trading on Friday.
The euro also dipped 0.2 percent against the yen to 111.59
yen <EURJPY=R>.
"Any worsening in fears over stability in the
Middle East would further dampen risk appetite, providing
support for safe haven currencies like the U.S. dollar, Swiss
franc and yen," said Bank of New Zealand currency strategist
Mike Jones.
Egyptian protesters were camped out in central Cairo on
Monday and vowed to stay until they had toppled President Hosni
Mubarak. []
The high-yielding and growth-linked Australian dollar fell
0.2 percent to $0.9919 <AUD=D4>, having dipped to as low as
$0.9866 earlier.
The Australian dollar dipped close to support at $0.9860,
the base of the daily Ichimoku cloud, and also at $0.9855, its
100-day moving average. Below such levels, stop-loss offers were
said to be lurking near $0.9850.
"High-yielding currencies and emerging market
currencies will come under pressure today," said Koji Fukaya,
chief FX strategist at Credit Suisse in Tokyo.
"Investors will try to close positions associated with
higher risk. I assume the market was a little bit long on the
euro and therefore we are seeing some selling there."
The dollar dipped 0.1 percent against the yen to 82.05 yen
<JPY=> but held steady against the Swiss franc at 0.9418 franc
<CHF=>.
"I just think it's a no-win situation. If Mubarak
stays in power you're going to have a lot of turbulence and
turmoil and demonstrations," said Andrew Brenner, head of
emerging markets fixed income, Guggenheim Securities in New
York.
"If Mubarak steps down you're going to have a continued move
to fundamentalists," he added.
SPREADING UNREST
Some investors fear that what's happening in Egypt could be
repeated elsewhere, which could threaten their investments in
many emerging markets -- one of the most lucrative strategies
last year.
"Behind the unrest is anger against inflation, which is
hurting many people in developing countries. The trouble is,
that is also happening in countries like India and China, too,"
said Tokai Tokyo Securities' Saito.
"A flood of money created in the developed world has been
flowing to emerging markets. But if those markets turn out to be
politically unstable, that money flow will drastically change."
Market players are also aware that selling in some emerging
market bonds could escalate to a self-feeding spiral, much like
in 2008, when investors had to sell many risky assets to cover
losses elsewhere.
"That's what we saw all back on in '08. You had money
managers, you had margin calls on certain things and they would
sell other things. That's what's going on and I think that's
what we're going to see for the next few days. Flight to quality
and the dollar should benefit from it." said Guggenheim's
Brenner.
Gulf stock markets tumbled on Sunday as investors, rattled
by turmoil in Egypt and concerns the unrest may spread, quit
their positions to push indices to multi-week lows.
MSCI's index of Asia-Pacific shares excluding Japan fell 1.2
percent on Monday <.MIAPJ0000PUS>, after Wall Street's benchmark
S&P 500 <.SPX> notched its biggest one-day loss in six months on
the flight to safety on Friday.
The Egyptian crisis is seen as having the
potential to overshadow broader and more fundamental economic
events this week, which include a slew of economic data such as
U.S. non-farm payrolls and central bank decisions.
(Additional reporting by Burton Frierson in New York, Gyles
Beckford in Wellington, Masayuki Kitano in Singapore and Reuters
FX analyst Krishna Kumar in Sydney; Editing by Alex Richardson)
