* Dollar index soars as risk appetite wanes
* Dollar hits 15-year low vs yen at 84.72 yen
* U.S. 2-yr yields fall after Fed steps to revive economy
* Euro, riskier FX fall as equities lose ground
(Recasts lead, updates prices)
By Wanfeng Zhou
NEW YORK, Aug 11 (Reuters) - The dollar rose on Wednesday
and was headed for its best day in nearly two years against a
basket of major currencies as a gloomy U.S. outlook and weak
Chinese data suggested the world economy was slowing.
Investors reacted by ditching all manner of risky assets,
including higher-yielding currencies and stocks, and taking
refuge in the dollar and Japanese yen. The yen was the only
major currency to rise against the greenback, which fell to a
15-year low around 85.72 yen. <JPY=EBS>
Heavy purchases of safe-haven U.S. Treasury debt, which
pushed yields sharply lower, also helped the yen as Japanese
investors with large dollar-denominated Treasury holdings
repatriated profits. Japan is the second largest holder of
Treasuries after China.
The two-year U.S. Treasury yield hit a record low a day
after the Federal Reserve downgraded its U.S. growth outlook
and said it would try to revive the flagging economy by buying
more government debt with cash from maturing mortgage bonds.
[]
China reported a slowdown in factory output, adding to the
picture of softening domestic demand. []
"The consensus is that, as major economies around the world
show reduced growth, this is being perceived negatively for
stocks. As stocks go down in value, investors are pulling out,
and this is proving positive for the U.S. dollar and yen," said
Michael Woolfolk, senior currency strategist at BNY Mellon in
New York.
The ICE Futures U.S. dollar index, <.DXY> which tracks the
greenback versus a basket of six currencies, soared 1.9 percent
to 82.160, the biggest one-day percentage rise since October
2008. It touched a high of 82.394, its strongest since late
July.
The euro <EUR=> lost 2.1 percent to $1.2904, the lowest
level since late July and its worst one-day showing since
January.
'WIN WIN' FOR YEN
The dollar dropped to 84.72 yen <JPY=> on electronic
trading platform EBS after taking out option barriers at 85.00
and 84.75, fueled by a narrowing of the spread between U.S. and
Japanese two-year yields. It was last down 0.2 percent at 85.22
yen.
Ashraf Laidi, chief market strategist at CMC Markets in
London, said the Fed's "outright Treasuries purchases will
likely extend the yen's win-win scenario." Falling U.S. yields
will keep Japanese capital at home, while falling stocks will
also boost the currency, he said.
Japanese Finance Minister Yoshihiko Noda said Wednesday he
was closely watching foreign exchange markets, but analysts
doubted his comments would escalate into currency intervention
to weaken the yen. For details, see []
"Japan needs the support of the U.S. and Europe to
intervene, but the Fed and the European Central Bank are
focused on other problems right now. So I don't think it is
possible at these levels," said Manuel Oliveri, currency
analyst at UBS in Zurich.
"I see no upside for dollar/yen right now, and I can see it
falling towards 80 yen," he said.
The record low in dollar/yen came in April 1995 at about
79.75 yen.
The yen gained across the board, with the euro down more
than 2 percent at 110.11 yen <EURJPY=R> and the Aussie
<AUDJPY=R> losing 1.7 percent.
Adam Cole, currency strategist at RBC Capital Markets, said
that while concerns about U.S. growth have intensified,
investors have reacted by selling risk instead of selling the
dollar on a view that if the U.S. economy is slowing
materially, it will not be in isolation.
"Dollar/yen is really not the big story today. Yen crosses
are," said Marc Chandler, global head of currency strategy at
Brown Brothers Harriman in New York. "The markets are concerned
about world growth, not just the U.S."
Elsewhere, sterling fell more than 1 percent against the
dollar <GBP=D4> after the Bank of England said UK inflation
would fall well below its 2 percent target in two years, even
if interest rates stay low. []
(Additional reporting by Steven C. Johnson in New York and
Neal Armstrong in London; editing by Jeffrey Benkoe)
