Dollar rises as investors seek safety

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LONDON (Reuters) -- The dollar and the yen rose on Thursday as equity and commodity markets fell, encouraging investors to pare back exposure to risk and buy back the two low-yielders against perceived riskier currencies.

The euro fell more than 1% against the yen while the higher-yielding commodity-linked Australian and New Zealand dollars slid as traders took profit from carry trades.

Analysts said some investors were already taking risk off the table heading into the year end, wary that the recent rally in risky assets may have been overdone and that economic data has not been as rosy as many had hoped for.

A senior economic advisor to the German government highlighted these concerns as he told Reuters Television that Germany could face a double-dip recession in late 2010 or early 2011 as extra public spending is withdrawn.

Analysts said investors were also wary of emerging market countries looking at capital controls to limit some of the hot money flows into their economies, with new steps announced by Brazil and South Korea.

"Though it's hard to point to any specific factor today, there are some indications of a rise in risk aversion - stocks have come off and there are slight concerns that a lot of data recently has not been living up to expectations," Standard Bank currency analyst Steve Barrow said.

The dollar index, a measure of its performance against a basket of six currencies, was up 0.5% to 75.516, further above a 15-month low of 74.679 hit on Tuesday.

The euro fell 0.7% against the dollar to $1.4854 and slid to a two-week low of ¥132.08, approaching key technical support at the 200-day moving average around ¥132.

On Wednesday, the euro climbed more than 0.5% against the dollar but struggled on Thursday to break back above $1.5000. It has remained within the range of a large $1.48-$1.51 "double no touch" options structure rolling off on Friday.

"When euro/dollar does come off it doesn't come off that much, and even when we have bouts of risk aversion I still feel the underlying situation for euro/dollar is pretty positive," Standard Bank's Barrow said.

The dollar fell 0.5% against the yen to ¥88.95. It remains firmly in a downtrend against the Japanese currency stemming back to April this year, and dealers do not rule out a test of its October low of ¥88.01.

The Australian dollar fell 1% to hit a two-week low of $0.9183, while the New Zealand dollar was the most underperforming currency, losing as much as 2% to hit lows of $0.7308 and ¥65.06.

"The focus is very much on risk sentiment because we don't have any major events on the agenda, plus the market is a little more sensitive going into the year-end, with people wanting to protect their positions," said Niels Christensen, currency strategist at Nordea in Copenhagen.

European equities were down 0.4%, falling for the third consecutive session, while oil fell and gold prices retreated from record highs.

Analysts said comments from the main opposition party leader in New Zealand that it would seek to change a policy that sets the central bank's main role as controlling inflation through interest rates added to the kiwi's fall.

The market will watch U.S. jobless benefit claims for the week ended Nov. 14, due at 8:30 a.m. ET, to see if the labor market is stabilizing. Economists in a Reuters survey forecast 505,000 new filings compared with 502,000 the week before.