* Dlr gains, hits highest vs yen since September 8
* Price action subdued, Japan on last trading day of 2009
* Fiscal worries weigh on yen
* U.S. Chicago PMI data adds to recovery view
(Recasts, adds quote, updates prices)
NEW YORK, Dec 30 (Reuters) - The dollar gained across the
board on Wednesday, hitting its highest since early September
against the yen, on year-end flows in thin trade and views the
U.S. economy is on the road to recovery.
Concerns about Japanese fiscal health also weighed on the
yen after rating agency Standard & Poor's said Japan's credit
rating could be in danger if policy initiatives fail to
stabilise and gradually reduce the country's debt burden.
[]
Market activity was extremely subdued ahead of the new
year, however, with Japanese markets closed on Thursday and
European and U.S. markets closed on Friday.
A report showing U.S. Midwest business activity expanded
far more than expected in December helped reinforce views that
the U.S. economy is on the mend, analysts said.
"The dollar is gaining some traction and extending gains
from yesterday," said Kathy Lien, director of currency research
at GFT Forex in New York.
Midway through the New York session, the dollar had reached
a high of 92.77 yen according to Reuters data, its highest
since September 8. It was last at 92.63 yen <JPY=>, still up
0.7 percent on the global day.
The dollar also touched the highest against the yen since
September 8 on electronic trading platform EBS <JPY=EBS>.
The dollar's gains on Wednesday pushed it to a 2.2 percent
advance against the yen for 2009.
"People are starting to get increasingly worried about
Japan's fiscal situation," Bank of New York Mellon currency
strategist Neil Mellor said in London.
Fiscal issues will be the big story at the start of 2010,
especially in Japan and the UK," Mellor said.
The euro was last down 0.4 percent against the dollar to
$1.4296 <EUR=>, earlier touching a one-week low. It was well
below the previous day's two-week high.
Earlier in the global session, ongoing concerns about how
the UK will fund its ballooning fiscal deficit helped push
sterling to a two-and-a-half month low against the dollar
<GBP=>.
But the pound later recovered and was last up 0.8 percent
at $1.6030. Analysts cautioned the move was driven by
end-of-year flows and holiday-thinned trading volumes.
[].
RATE OUTLOOK
Improved U.S. data in the past month has made many review
their forecasts for when rates might start to rise and has
brought the dollar up from a 14-year low against the yen and
revived its fortunes against other majors.
When the Federal Reserve will start to raise rates will be
a key question for the currency market in 2010, with investors
watching policymaker comments closely, as well as what data
indicates about the strength of the labour market.
The December non-farm payrolls report is due on Jan. 8 and
some economists are expecting the data to turn positive in the
first quarter, after the number of jobs lost shrunk to 11,000
in November.
While the market is looking to the timing of Fed
tightening, the Bank of Japan is expected to keep interest
rates low and may implement further easing measures. []
Traders said once the market gets a stronger sense of
timing for the U.S. exit strategy, the yen might become the
preferred currency to fund purchases in higher yielding assets.
In the only U.S. data of note, The Institute for Supply
Management-Chicago business barometer rose to 60.0 from 56.1 in
November. That was much better than economists' forecast of
55.0, which was the median in a Reuters poll that ranged from
52.0 to 58.0. [].
"The momentum in the greenback was further fueled by the
much stronger than expected Chicago PMI report," said GFT's
Lien in a note to clients after the report's release.
(Additional reporting by Jessica Mortimer in London)
(Reporting by Nick Olivari)
