* Dollar gains as weak U.S. data sparks risk aversion
* Philly Fed index, U.S. industrial output plunge
* Global stocks swoon, adding to world recession fears
(Recasts, updates prices, adds comment, detail, byline)
By Steven C. Johnson
NEW YORK, Oct 16 (Reuters) - The dollar rose against the
yen and euro in choppy trade on Thursday as stocks fell and
investors sought shelter in dollar-denominated assets for fear
efforts to rescue troubled banks won't stave off a global
recession.
Though the credit crisis began in the United States, the
dollar has gained when global investors unwind risky trades in
higher-yielding currencies and assets and reroute funds into
U.S. Treasuries or cash.
That's been so even when unsettling news comes from the
United States as on Thursday when data showed Mid-Atlantic
regional factory activity plunged to an 18-year low while
overall U.S. industrial output posted its biggest monthly slide
since 1974. For more see [].
That followed Wednesday's report showing U.S. retail sales
fell sharply last month, stoking fear about American consumers
and overshadowing government moves worldwide to kick-start
lending and shock the financial system out of paralysis.
"Risk continues to dictate price moves in the currency
market, much to the benefit of the dollar," said Ashraf Laidi,
chief market strategist at CMC Markets in New York.
With risky assets out of vogue, "people are taking a break,
going into cash, and as big funds go into neutral, it will
support the dollar."
Late morning, the euro was down 0.4 percent at $1.3400
<EUR=>. Even against the low-yielding yen, which also tends to
gain in times of risk aversion, the dollar rose 0.8 percent to
100.39 <JPY=>, though it was off a session peak of 101.38 yen.
The euro edged up 0.3 percent to 134.70 yen <EURJPY=>.
Earlier, a report showing the number of Americans filing
first-time jobless claims dropped in the latest week initially
eased concern about the U.S. economy, but the data was offset
by the industrial reports.
In the current environment, "frightened capital moves where
it can be accommodated, not where it wishes, and where it can
best be accommodated ... these days is the U.S. dollar," Dennis
Gartman wrote in Thursday's edition of The Gartman Letter, a
daily newsletter for investors.
Sterling gained 0.4 percent to $1.7242 <GBP=>, boosted
partly by a Bank of England move that makes it easier for
British financial firms to borrow from the central bank.
STOCKS SLIDE, ECB RATE CUTS EYED
U.S. and European stocks fell sharply in choppy trade on
Thursday, following an 11.4 percent plunge in Japan's Nikkei
average <>.
News that the Swiss government was taking a 10 percent
stake in bank UBS <UBSN.VX> and that Hungary had received an
emergency loan from the European Central Bank underlined
persistent financial instability in Europe.
Laidi said expectations that the ECB will cut interest
rates again this year had also weighed on the euro, which he
said could retreat to the $1.30-$1.31 area by month end.
But he also said the safe-haven flows supporting the dollar
won't last forever, either, and any sustained signs of looser
global credit conditions could renew focus on U.S. weakness.
Kurt Karl, chief economist at Swiss Re in New York, said
"this recession is going to be deeper than most expected a
month or so ago, there's no way around it," adding "our
forecast remains for a slide in the U.S. currency."
(Additional reporting by Vivianne Rodrigues; Editing by James
Dalgleish)
