Swiss franc keeps firm footing; Aussie seen capped

An employee counts U.S. dollar notes at a money changer in Jakarta January 27, 2010.

SYDNEY (Reuters) - The Swiss franc held on to gains early in Asia on Friday, having powered higher on mounting Middle East tensions, while the Australian dollar lost a bit of steam as it reached the top-end of its range.

The Swiss currency, traditionally sought in times of heightened geopolitical tension, hit two-week highs versus the dollar and euro as unrest spread across the Middle East and North Africa.

Anti-government protesters from Bahrain to Iran were hoping to emulate those who toppled veteran leaders in Egypt and Tunisia.

The dollar fell as low as 0.9474 Swiss francs and last stood at 0.9495 francs, while the euro plumbed 1.2890 francs, before edging back to 1.2916 francs.

"The outperformance of the Swiss franc seems to reflect safe-haven flows owing to Middle East/North Africa tensions," said David Watt, senior fixed-income and currency strategist at RBC Capital Markets in Toronto.

The dollar was also broadly weaker against a basket of major currencies. Versus the yen, it traded at 83.32 yen, having fallen to 83.13 overnight, well off an eight-week high near 84 yen set on Wednesday.

"USDJPY is undergoing a corrective pullback following the failure to break through the 84.00 level," BNP Paribas analysts wrote in a client note.

"Indeed, U.S. yields have moved lower, undermining support for the USD, as the focus remains on the labor market data and Thursday's weekly claims data was on the disappointing side."

The dollar index .DXY, which tracks the greenback's performance against a basket of major currencies, fell 0.3 percent to 77.981. Next support comes in at 77.88, the 50 percent retracement of the February 2 to February 14 rise.

Broad weakness in the dollar and ongoing strength in commodity prices helped drive the Aussie to one-week highs of $1.0131. It last stood at $1.0110.

"The market was well short Aussie with less liquidity in New York ahead of the long weekend. But now that we're at the high end of the range, I'd look to play from the short side," a trader at a U.S. investment bank said.

On Thursday, Reserve Bank of Australia Assistant Governor Philip Lowe said inflation could rise to 3 percent by mid-year, in a major upward revision to forecasts made just two weeks ago, raising the risk that rates could rise earlier than expected if price pressure picks up steam.

U.S. markets will be shut on Monday for Presidents' Day.

(Additional reporting by Gertrude Chavez-Dreyfuss in New York; Editing by Wayne Cole)