* Dollar gains broadly, sterling tumbles on bank sector woes
* Euro drops to 6-week low against dollar
* Kiwi slides on soft inflation data
By Satomi Noguchi
TOKYO, Jan 20 (Reuters) - The dollar gained against a basket
of currencies on Tuesday as the pound extended losses to a
seven-year low versus the greenback, after Royal Bank of Scotland
<RBS.L> recorded the biggest loss in British corporate history
and revived concerns about the global banking sector.
Sterling also hit a record low against the yen after the
impact of Britain's rescue plans quickly dissipated in the face
of tumbling European shares.[]
Tokyo stocks fell 2.3 percent <> on renewed risk
aversion, giving up gains made since late last week ahead of
Tuesday's inauguration of Barack Obama as U.S. president, and
prompted investors to seek safety in the dollar and the yen.
The euro also extended its fall after having dropped sharply
on Monday on a ratings downgrade of Spain by rating agency
Standard & Poor's and grim economic forecasts from the European
Commission.
"The global economy is deteriorating much faster than
anticipated. As a result, losses in the banking sector are
expanding and we cannot see a bottom to it," said a trader at a
Japanese bank.
"The market is well aware of policy-makers' determination to
avert more collapses of financial firms, but a guaranteed rescue
is impossible," the trader said.
The dollar index, a gauge of the greenback's performance
against a basket of six major currencies, gained 0.4 percent to
85.511 <.DXY>.
The pound fell as low as $1.4132, its lowest since March
2002. It recovered a tad to $1.4275 <GBP=D4>, but was down 1.0
percent from late overseas trade on Monday, when U.S. financial
markets were closed for a holiday.
Sterling tumbled 1.6 percent to 128.94 yen <GBPJPY=R>, after
hitting record low of 127.47 yen.
The euro fell 0.4 percent to $1.3018 <EUR=> after touching a
six-week low of $1.2974 on trading platform EBS.
The euro fell 0.7 percent to 117.65 yen <EURJPY=R>.
Traders said sterling and the euro will likely fall further
as Dow futures <DJc1> pointed to further declines on Wall Street,
an outlook likely to also push down European shares, sapping risk
appetite.
Economic data due in Europe such as the German ZEW economic
sentiment index for January may further weigh on the
European single currency, which could drag down sterling, they
added.
German economic sentiment probably inched up to minus 44.0 in
January from minus 45.2 in December but weak data likely kept the
mood subdued, a Reuters poll showed.
"The ailing banking sector in the UK coupled with weak
economic conditions in Europe has accelerated downward pressure
on currencies in Europe," said Saburo Matsumoto, senior manager
at Sumitomo Trust & Banking.
YEN-SELLING FLOWS MAY SLOW
The yen drew some support from news that Japan's Kokusai
Asset Management cut a monthly dividend for its flagship mutual
fund for the first time in eight years, prompting traders to
believe yen-selling flows from Japanese retail investors could
further slow in the coming months. []
The Kokusai Global Sovereign Open fund invests in government
bonds with high credit ratings and is the world's second-largest
bond fund after PIMCO Total Return Fund of the U.S.
"A cut in dividends or investment returns adds to the pain
mutual fund investors are already feeling from the yen's broad
strength," said a senior trader at a major Japanese bank.
"The news is a supporting factor for those who see further
yen rises," the trader said.
The dollar fell 0.3 percent to 90.36 yen <JPY=R>.
The New Zealand dollar slid against the dollar and the yen on
a sharper-than-expected fall in a fourth-quarter price index that
reinforced expectations of deeper interest rate cuts next week.
The kiwi was also under pressure after S&P cut Spain's debt
rating, prompting fears that other countries facing a severe
deterioration in public finances amid the floundering global
economy including New Zealand could prove to be next after
Greece's downgrade last week. []
The kiwi fell 0.6 percent to $0.5337 <NZD=D4> and dropped 1.4
percent against the yen to 48.23 yen <NZDJPY=R>.
(Additional reporting by Kaori Kaneko; Editing by Edwina Gibbs)
