FOREX-Dollar soars as weak data spurs safety demand

* Weak data from U.S., China, euro zone fans risk aversion
* Euro posts worst daily performance since mid-December
* Dollar hits five-week high versus yen

By Wanfeng Zhou
NEW YORK, June 21 (Reuters) - The U.S. dollar posted its
biggest rise in more than three months against major currencies
on Th ursday as weak data around the globe further unnerved
investors disappointed with the Federal Reserve's decision to
take only a modest step to bolster the economy.
Currencies of commodity-linked economies, including
Australia, New Zealand and Canada, sold off as investors dumped
riskier investments and parked money in the relative safety of
the dollar.
U.S. jobless claims indicated the labor market is still
struggling, while signs of softening in U.S. manufacturing and
weakness in global output heightened the aversion to risk.

The data came a day after the U.S. central bank expanded a
program to keep long-term borrowing costs down and said it was
ready to do more if needed, but disappointed some investors who
had hoped for another round of broad-based bond buying.
"We are still dealing with the lack of any quantitative
easing, which is putting a little bit of a drag on the markets,"
said Fabian Eliasson, vice president of currency sales at Mizuho
Corporate Bank in New York.
"The poor data puts further risk-off sentiment into the
markets. You can see the commodity currencies are getting hit
extra hard."
The euro dropped as low as $1.2529 on Reuters data,
far off Wednesday's high of $1.2743. It was last at $1.2541,
down 1.3 percent, its worst day since mid-December.
Adding to weakness in the euro was data showing Germany's
private sector shrank in June for the second straight month,
with manufacturing activity hitting a three-year low.
It kept alive speculation the European Central Bank will cut
interest rates soon, offering investors a fresh excuse to sell
the euro.
Against the yen, the dollar rose as high as 80.33 yen
, its highest since mid-May. It was last at 80.32, up 1
percent.

DOLLAR UPSIDE
The dollar index, a measure of the greenback's
performance against a basket of currencies, rose about 1 percent
to 82.355, its best day since March 9.
"We've come back to the situation where the data was weak
and concerning and we have anti-risk sentiment going on, which
tends to benefit the dollar," said Tom Fitzpatrick, chief
technical strategist at Citigroup.
Still, analysts said the dollar's outlook was clouded, with
more players likely to position for fresh Fed stimulus after the
central bank downgraded its U.S. growth forecast.
"We maintain our view that Fed easing could weaken the U.S.
dollar sharply in the weeks ahead," BNP Paribas wrote to
clients. "While euro/dollar could be taken higher for the ride,
we think the commodity bloc (AUD, NZD and CAD) will continue to
benefit most."
A Reuters poll after the Fed decision showed that Wall
Street firms still see a 50 percent chance of another round of
quantitative easing.
Some analysts said the Fed was probably saving ammunition,
given the risk the euro zone crisis could deteriorate in coming
weeks as borrowing costs in peripheral countries remain high.
Spain's medium-term borrowing costs spiraled to a euro-era
record o n T hursday and independent auditors said Spanish banks
may need up to 62 billion euros in extra capital, to be filled
mostly by a euro zone bailout.
The Australian dollar fell 1.6 percent to $1.0030,
retreating from a seven-week high of $1.0225 hit o n W ednesday.
The New Zealand dollar fell 1.3 percent to $0.7853.
The greenback also rallied more than 1 percent versus the
Swiss franc and the Canadian dollar.
Sterling slid 0.8 percent to $1.5588. Bank of England
policymaker Martin Weale said sterling may have to weaken
further in order to close the country's trade gap.