FOREX-Rally in safe haven currencies stalls as stocks rise

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Thursday August 26, 2010 02:19:13 AM GMT

* Demand for yen, Swiss franc stalls as stocks bounce

* U.S. weekly new jobless claims fall more than expected

* Analysts expect economic weakness to underpin safe havens

* Traders await Bernanke speech at Fed gathering

(Adds comments, details. Updates prices.)

By Vivianne Rodrigues

NEW YORK, Aug 26 (Reuters) - A rally in safe-haven currencies such as the yen and the Swiss franc stalled on Thursday as global share prices rebounded, although worries about the world economy slowing down kept them supported.

Demand for the yen, which rose to 15-year high on Tuesday, cooled amid speculation Bank of Japan Governor Masaaki Shirakawa might address the currency's strength at a Federal Reserve retreat starting on Thursday

European shares <.FTEU3> rose, clawing back from a five-week low on forecast-beating earnings results and tracking a rise in Asian markets.

In the United States, stock futures rose and the dollar pared losses against the yen after a government report showed new U.S. claims for unemployment benefits fell more that expected last week. For details, see [ID:nN26152418]

"Claims data surprised substantially on the downside," said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank AG. "For the currency market, the immediate response has been risk positive, best expressed through dollar/yen."

In morning trading in New York, the dollar was 0.1 percent higher at 84.68 yen <JPY=>. The euro hit a session high against the dollar <EUR=> of $1.2746 before pulling back to around $1.2680, still up 0.1 percent on the day.

But analysts said the better sentiment was unlikely to be sustained.

"I would expect weaker economic activity to catch up with stock markets and demand for currencies such as the Swiss franc and the yen to continue," said Chris Turner, head of FX strategy at ING.

Increasing concerns in the past few months about a global economic slowdown have pushed the yen and Swiss franc higher due to their perceived safe-haven status. The euro traded near an all-time low versus the Swiss franc hit on Wednesday <EURCHF=>.

The single currency traded with gains of around 0.2 percent versus the yen <EURJPY=> at 107.37 yen, having made a brief show above 108 yen earlier on a bounce in European stocks. The euro hit a nine-year low on Tuesday.

Against the Swiss franc, the euro was steady at 1.3035 francs <EURCHF=>, near an all-time low hit on Wednesday under 1.3000.

Gains in the euro helped push the dollar <.DXY> down 0.3 percent against a currency basket.

The euro flirted with its 55-day and 100-day moving averages at $1.2713 and $1.2737 respectively. A close above these levels would add to upward momentum.

JACKSON HOLE

Analysts said the market was well contained on caution about possible Japanese intervention, while many investors remained on the sideline.

The BOJ saying Shirakawa will attend the Kansas City Federal Reserve conference in Jackson Hole this week has made some players hesitant to push the yen higher. [ID:nTKV006403]

Speculation has grown that Japan may intervene to stem the yen's rise for the first time since March 2004. It hit an all-time high of 79.75 to the dollar in 1995.

Bernanke will speak in Jackson Hole on Friday, and is likely to signal his views about the U.S. economy.

"The latest data though erratic week to week, plays to the camp that the trends in the labor market will not put as much pressure on the Fed Chairman to display a dovish line (tomorrow)," said Ruskin at Deutsche Bank.

(Additional reporting by Neal Armstrong in London)

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