* Dollar gains on Iraq-Iran tensions
* Euro/dollar options barrier broken at $1.4300
* Swiss franc stronger vs dollar and euro
(Recasts, updates prices, adds comment)
NEW YORK, Dec 18 (Reuters) - The dollar rose in a
safe-haven bid against the euro and yen on Friday after Iraqi
reports that 11 Iranian troops had entered Iraqi territory on
and raised the Iranian flag at an oilfield whose ownership they
dispute.
Iraq's deputy interior minister, Ahmed Ali al-Khafaji,
initially denied the reports but then reversed position and
said the incursion on Friday was the latest in a series this
week.
He said the Iraqi government had take no military action
but stressed it would seek a measured diplomatic response to
the situation. For more on these stories see []
and [] and [] and []
The Swiss franc, which like the dollar benefits from
safe-haven flows in times of uncertainty, rose on rumors of a
coup in Pakistan that were quickly denied and by stop-loss
orders that propelled it higher. []
"It's Greece, it's Pakistan and certainly Iran has been been
one of the factors helping to support the dollar," said John
McCarthy, director of foreign exchange at ING Capital Markets
in New York.
Midway through the New York session, the euro was down 0.5
percent on the day at $1.4270 <EUR=>, off a session peak of
$1.4411 earlier in the global session. The euro had been up
earlier as investors bet its declines against the dollar this
week had been too far, too fast on concerns about Greece's
public finances.
While the scale of the Iranian incursion was small,
investors were clearly rattled.
Iraq and Iran have had better political relations since the
U.S.-led invasion of Iraq and Iraq's regime change in 2003, but
there are still 115,000 U.S. troops in Iraq amid tensions
between Washington and Tehran over Iran's nuclear program.
BARRIER BROKEN
Selling in the euro accelerated after it broke through
$1.4300 for the first time since Sept. 4.
"Barrier options at $1.43 were broken, forcing those
defending the euro at $1.43 to dump their holdings given that
their options are now worthless," said Brian Dolan, chief
currency strategist, at Forex.com. "That brought in momentum
sellers on the euro."
Against the Swiss franc, the euro was last at 1.4943 francs
<EURCHF=>, down 0.5 pct on the day, and below the perceived
threshold of 1.50 francs at which investors anticipated the
Swiss National Bank would intervene to weaken the franc.
The euro fell to its weakest level since March when the
Swiss National Bank intervened to sell francs after announcing
steps to fight deflation.
"The markets are fairly illiquid, which is exaggerating
moves," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFJ.
"There may not be much benefit for the SNB to intervene
now, given the markets are so illiquid," he added.
The euro was on track for its third straight weekly fall
against the dollar. It struggled this week after Standard &
Poor's became the second ratings firm this month to downgrade
Greece.
The dollar was little changed against the Swiss franc
<CHF=> at 1.0470 francs.
"The Swiss economy and Swiss banking system are
traditionally the safe haven," said Joseph Trevisani, chief
market analyst at FX Solutions in Ridgewood, New Jersey. "But
with thin liquidity it is difficult to tell the source of the
movement."
DOLLAR, YEN PRESSURED
Yen crosses, which fell sharply in the wake of the euro's
fall against the Swiss franc, came off their lows as investors
who had bet against the yen were forced to buy to reduce
losses.
The euro was up 0.5 percent on the day against the yen
<EURJPY=R>, sterling was up 0.3 percent <GBPJPY=R> and the
Australian dollar rose 0.8 percent against the yen <AUDJPY=R>.
The dollar was up 1 percent at 90.77 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. []
(Reporting by Nick Olivari; Additional reporting by Gertrude
Chavez-Dreyfuss in New York and Tamawa Desai in London; Editing
by Leslie Adler)
