* Pound hits new 23-year low vs dollar, UK in recession
* Euro hits 6-week low vs dollar, Europe shares hit 6-year
low
* Escalating risk aversion boost yen, dollar
(Updates prices, adds quotes)
By Naomi Tajitsu
LONDON, Jan 23 (Reuters) - Sterling hit a fresh 23-year low
against the dollar on Friday after dismal economic data
confirmed the UK is in recession, while extreme risk aversion
pushed the dollar to a six-week high against the euro.
A tumble in European shares to a six-year low prompted
investors to dump risky assets, which boosted the dollar to its
highest level against a basket of currencies since early
December and triggered another dramatic, broad rally in the yen.
"In an environment where risk aversion has remained elevated
inversely to the slide in equity markets, we're seeing the
dollar and the yen continue to be the net beneficiaries, while
sterling and the euro are seeing some pretty sizeable shifts,"
said Jeremy Stretch, strategist at Rabobank in London.
Sterling <GBP=> tumbled to a low at $1.3500, its weakest
since September 1985, after data showed the UK economy
contracted by 1.5 percent in the fourth quarter, far more than
analysts had expected. [].
"Today's numbers have simply compounded what has been a
pretty horrendous week for UK Plc," said Stretch at Rabobank.
Royal Bank of Scotland's <RBS.L> announcement of massive
2008 losses on Monday kicked off sterling's latest plunge, which
deepened on speculation that the UK government plan announced on
Monday may not be enough to rescue the financial sector.
Tumbling bank shares, a string of weak economic data and the
possibility of quantitative easing by the Bank of England kept
intense selling pressure on sterling. It is on track to post a
weekly fall of 8.5 percent against the dollar, close to its
steep decline at the time of it's exit from the European
Exchange Rate Mechanism in 1992.
The dismal view of the UK helped to raise concerns about the
global economy, keeping risk aversion high and pushing the euro
<EUR=> as low as $1.2766, its weakest since early December.
A fall in European shares <> to 742.53, its lowest
since April 2003, helped to keep the euro under selling
pressure. It has has fallen nearly 4 percent against the dollar
this week.
The euro has been affected by credit downgrades to three
euro zone countries, Spain, Greece and Portugal, which has
tarnished the appeal of the region's assets with some investors.
The single currency took little encouragement from polls on
Friday showing the euro zone manufacturing and services sector
contracted at a slightly slower pace in January, since they
remain deep in recessionary territory [].
The dollar's gains versus sterling and the euro pushed the
U.S currency's trade-weighted index <.DXY> up around 1.5 percent
to 86.809, its highest in nearly seven weeks.
The yen jumped as investors shed risky assets, pushing the
low-yielding Japanese currency to a record high 118.87 yen
<GBPJPY=R>, and pushed the pound down 11 percent so far this
week.
The euro fell more than 2 percent to 112.51 yen <EURJPY=R>
edging closer to a seven-year trough.
The dollar slipped 0.3 percent to 88.44 yen, after sliding
as low as 88.00 yen according to Reuters data. Earlier in the
week, the pair fell to 87.10 yen, its lowest level since
mid-1995.
Risk aversion also stung the higher-yielding Australian and
New Zealand dollars, which each fell around 2 percent against
the dollar. The Australian currency fell as low as $0.6418, its
weakest in seven weeks.
Also helping to support the dollar were comments from U.S.
Treasury Secretary nominee Timothy Geithner who said a strong
dollar is in the United States' interest.
His remarks came on Thursday when he won the Senate Finance
Committee's backing to head the U.S. Treasury. []
Given the yen's dramatic gains this week market players were
on the lookout for more comments from Japanese authorities about
possible currency intervention to stem the yen's rise.
Japanese Finance Minister Shoichi Nakagawa on Friday said
that economic problems in the United States and Europe were
affecting Japan's stock and currency markets [].
Currency levels have come under close scrutiny this week,
with France's finance minister on Wednesday complaining against
sterling weakness against the euro. The two currencies are
edging closer to parity.
Concerns are also growing about the possibility that the
Swiss National Bank could intervene to weaken the Swiss
currency, which, like the yen, has gained as investors seek
safer assets.
"If euro/Swiss franc moves into the 1.43 franc area the SNB
will become more vocal on this issue," BNP Paribas currency
strategist Ian Stannard said.
The euro was trading down 0.4 percent at 1.4934 francs
<EURCHF=>.
(Additional reporting by Jessica Mortimer; Editing by Ian
Jones)
