* Dollar, yen gain; dollar index hits 2-mth high <.DXY>
* Recession fears increase after grim Japanese GDP data
* G7 do not mention yen or sterling; Euro, pound fall
* Trichet speech eyed; trading subdued due to U.S. holiday
(Adds quotes, changes prices)
By Jessica Mortimer
LONDON, Feb 16 (Reuters) - The dollar and the yen gained
ground on Monday as grim Japanese data intensified global
recession fears and encouraged buying of safer assets, while
concerns about trouble in eastern Europe pressured the euro.
Figures showing Japan's economy shank sharply in the final
quarter of 2008, recording its biggest quarterly decline since
1974, helped perceived safe-haven currencies such as the dollar
and the yen, propelling the dollar index to a two-month high.
Meanwhile, the lack of reference to yen strength in the
final communique of the Group of Seven finance ministers meeting
in Rome at the weekend allowed investors to resume buying the
Japanese currency.
"The data out of Japan was nothing short of shocking and
there is a building sense that there are more problems ahead for
the global economy," IDEAglobal senior strategist Maurice Pomery
said. This has helped support the dollar and the yen, he added.
The euro came close to a two-month low against the dollar,
while sterling was near a two-week trough, with both weighed by
heightened risk aversion in the market as European equities
<> fell 1 percent.
The single currency was also pressured by fresh worries
about western European banks' exposure to troubles in eastern
Europe as S&P rating agency warned it could cut the sovereign
ratings of Ukraine due to refinancing concerns [].
"Continuing problems with eastern European emerging markets
will keep the dollar bid against the euro," IDEAglobal's Pomery
said.
He noted, however, that trading was relatively subdued, with
U.S. markets closed for a public holiday.
At 1119 GMT the dollar index <.DXY> was at 86.690, just shy
of an earlier two-month high of 86.871, according to Reuters
data.
The euro fell 0.8 percent against the U.S. currency at
$1.2758 <EUR=> and the pound lost 1 percent to $1.4236 <GBP=>.
The pound also lost ground as the G7 meeting did not mention
the recent sharp fall in the value of the UK currency as many in
the market had expected.
Against the yen the euro dropped 1.2 percent to 117.09 yen
<EURJPY=>, while the dollar dipped 0.2 percent to 91.76 yen
<JPY=>.
The dollar earlier briefly edged into positive territory
against the yen after Japanese finance minister Shoichi Nakagawa
said he would resign if asked to after coming under fire for his
behaviour at a G7 news conference [].
It quickly turned back into the red, however, as Nakagawa
said Prime Minister Taro Aso had asked him to stay on in the
job, adding that he had been affected by medicine he was taking
for a cold at the G7 meeting [].
TRICHET EYED
With U.S. interest rates now standing at between zero and
0.25 percent and UK rates at 1 percent and expected to fall
further, the focus is on what the next move will be by euro zone
policymakers.
Speaking on Saturday, European Central Bank president
Jean-Claude Trichet said the ECB had not drawn any particular
conclusions after discussions with other banks [].
Trichet is due to speak on Monday afternoon and investors
will be watching closely for any clues on how much more the
central bank is likely to cut rates and whether it is
considering unconventional measures to boost the money supply.
"Trichet could be another hitch for the euro if it opens the
door to another rate cut," Commerzbank currency strategist Antje
Praefcke said.
The ECB left rates on hold at 2.0 percent in February but it
is widely expected to cut rates in March in an attempt to
bolster a flagging euro zone economy.
Meanwhile, recession fears intensified after data showed an
unprecedented slump in exports caused Japan's economy to shrink
by 3.3 percent in October-December, the sharpest fall since the
first oil crisis in 1974 [].
Analysts said the grim figures weighed on higher-yielding
currencies, with the Australian dollar particularly weak on
concerns about a hit to its trade with Japan.
The Australian dollar was down 1.2 percent against the U.S.
dollar at $0.6490 <AUD=>.
(Reporting by Jessica Mortimer; Editing by Ian Jones)
