* US Q4 GDP falls 3.8 pct, better than forecast; dlr gains
* Euro tumbles on weak euro zone data, risk aversion
* Repatriation flows still lifting dollar, yen
(Recasts, updates prices, adds comment, changes byline)
By Steven C. Johnson
NEW YORK, Jan 30 (Reuters) - The dollar rose against the
euro on Friday, on track for its best month since October, as
evidence of a prolonged slump on both sides of the Atlantic
added to the greenback's appeal as a safe haven for investors.
The euro shed more than 1 percent against the dollar and
tumbled against the yen after euro-zone employment and
inflation data underscored the spreading economic malaise.
Another report showed the U.S. economy shrank 3.8 percent
in the last three months of 2008, its fastest pace in nearly 27
years. But because that was not as bleak as the 5.4 percent
contraction markets had expected, the dollar got a boost.
Though economists expect the U.S. downturn to accelerate in
the first half of 2009, currency strategists said that would
simply weaken global growth further, adding to the appeal of
the dollar and Japanese yen over other major currencies.
"The dollar has been displaying resilience to bad economic
numbers," said Vassili Serebriakov, senior currency strategist
at Wells Fargo in New York. "There's some question about
whether continued accumulation of very weak data will weaken
this resilience, but for now, I think it suggests risk-aversion
is still driving the currency market."
The euro was changing hands at $1.2804 <EUR=>, down 1.2
percent on the day and 8.4 percent in January, its worst
monthly slide since October. It shed 1.4 percent to 114.99 yen
<EURJPY=>. The dollar fell 0.2 percent to 89.75 yen <JPY=>.
The Japanese currency benefits as investors sell riskier
assets and currencies that were financed with cheaply-borrowed
yen, while the dollar rises as money is repatriated into
safe-haven U.S. assets such as Treasuries.
Mansoor Mohi-uddin, currency strategist at UBS in Zurich,
said U.S. investors have "substantial scope for further
repatriation" in coming quarters if risk aversion stays high.
"Of course, U.S. investors can't repatriate assets forever,
but for now, the share of their portfolios held in foreign
markets remains well above historical levels," he said.
Moody's Investor Service's decision to downgrade its
outlook on Ireland's long-term debt also dented the euro. The
Standard & Poor's rating agency earlier this month cut the
credit ratings of Spain, Portugal and Greece.
Michael Woolfolk, senior currency strategist at The Bank of
New York-Mellon, said the euro's slide through technical
resistance at $1.28 may set up a move toward $1.25 next week.
Sterling rose 1.3 percent to $1.4480 <GBP=>, lifted by
better-than-expected mortgage data, though analysts said it
could struggle next week ahead of a Bank of England meeting
likely to result in a 50 basis point rate cut to 1 percent.
The dollar rose 0.6 percent to 1.1599 Swiss francs <CHF=>
after Swiss President and Finance Minister Hans-Rudolf Merz was
quoted by Market News as saying he would back the central bank
if it wanted to sell the franc.
Last week, SNB Vice Chairman Philipp Hildebrand said the
bank stood ready to engage in unlimited currency intervention
to weaken the franc and fend off deflation.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing
by Chizu Nomiyama)
