* Yen falls as global shares rise; dlr at 91.70 yen <JPY=>
* Record euro zone GDP fall hits euro; at $1.2820 <EUR=>
* Sterling jumps on concern G7 may discuss its weakness
By Kylie MacLellan
LONDON, Feb 13 (Reuters) - The yen weakened on Friday as
hopes of a U.S. government programme to subsidise mortgages
boosted world stock markets, while data showing the deepest ever
economic contraction in the euro zone hit the euro.
Sterling also rallied as investors squared market positions
ahead of the weekend on concerns that Group of Seven finance
chiefs may discuss the currency's recent weakness, even though
they're keen to avoid upsetting troubled financial markets with
squabbles over exchange rates. []
The euro fell around a cent from intraday highs to below
$1.2850 after the euro zone recession data boosted pressure for
the European Central Bank to cut interest rates by half a
percentage point next month to a record low 1.5 percent.
[]
"The fall in euro area GDP is unprecedented," said Jurgen
Michels, European economist at Citigroup in London.
"To prevent an ongoing substantial undershooting of its
inflation target, we expect the ECB to cut rates by 50 basis
points in March, and we expect a further reduction in rates to
0.5 percent by mid-year," he said.
By 1300 GMT the euro was down 0.2 percent on the day at
$1.2837, having earlier hit a high of $1.2942.
It was down almost 2 percent against the British pound at
88.45 pence <EURGBP=> and was also down against the Swiss franc
<EURCHF=> and Swedish crown <EURSEK=>.
The euro rose against the yen, however, up 0.75 percent to
at 117.70 yen <EURJPY=R>, and the dollar rose 0.9 percent to
91.67 yen <JPY>, according to Reuters data.
The dollar and yen, which often show an inverse correlation
to investors' risk appetite, lost ground to higher-yielding
currencies as global equities recovered ahead of the G7 meeting
in Rome and a long weekend in the United States.
European shares <> were up roughly 2 percent, buoyed
by the latest U.S. plan which, in a major break from existing
aid programs, would seek to help homeowners before they fall
into arrears, sources familiar with the plan told Reuters
[].
G7 IN FOCUS
Markets welcomed the news that the Obama administration may
unveil a broad plan to put a floor under the housing market. A
rising wave of U.S. mortgage delinquencies has saddled the
global banking system with big losses that have led banks to
recoil from lending, choking economies around the world.
Attention now turns to the G7 meeting in Rome. Analysts will
be looking to see how much sterling's recent slide on world
currency markets features in discussions.
Analysts said the bleak euro zone GDP figures had also
raised concerns that G7 leaders may discuss the pound's recent
weakness against the euro.
French Economy Minister Christine Lagarde last month called
for Britain to do something about its currency as France worried
that its businesses will lose out to cheaper British goods and
services just when recession is spreading across the
industrialised world.
"There's a mixture of the poor GDP data and some
short-covering ahead of G7 in the sense that the bad set of euro
zone data might put the UK authorities under pressure at G7 to
do something about the weaker pound," said Investec chief
economist Philip Shaw.
Sterling rallied off one week lows hit on Thursday, gaining
1.9 percent against the dollar <GBP=> at $1.4527.
Looking forward, the increasing premium demanded for
insuring UK and U.S. government debt posed downside risks for
the dollar and sterling, ING FX strategist Tom Levinson said.
Credit rating agency Moody's Investors Services said late on
Thursday that the triple-A credit ratings of both the U.S. and
Britain are "being tested" by the strains facing the global
economy, while countries such as France and Germany are proving
more resistant.
The comments pushed the cost of protecting debt issued by
the British government to an all-time high and by the U.S. to a
near record high.For analysis on the effect of sovereign
default risk on currencies see [].
