FOREX-Euro darts ahead, dollar dragged by asset flows
* Euro breaks to 7-week high on USD, gains on yen and sterling
* US data disappoints, shows large outflows from US assets
* Markets watching PBOC money operations, Fed minutes ahead
By Wayne Cole
SYDNEY, Feb 19 (Reuters) - The euro was holding broad-based gains on Wednesday, having darted higher against the yen and sterling, while the dollar took a hit from soft economic data and news that foreign investors had been heavy sellers of U.S. assets.
The euro was up at $1.3758 in Asian trade, having stretched as far as $1.3769 overnight, its highest in seven weeks and breaching a key resistance barrier at $1.3740.
Disappointing data on New York manufacturing and U.S. housing added to the case for the Federal Reserve to be patient in its tapering plans and pushed Treasury yields lower, so undermining the dollar's yield advantage.
Perhaps even more telling for the long run, figures from Treasury showed overseas investors sold almost $120 billion of U.S. assets in December.
Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, noted that the net outflow from U.S. equities over 2013 has amounted to a huge $214 billion.
In contrast, the euro zone attracted inflows into stocks of 111 billion euros. At the same time, the euro zone enjoyed a record current account surplus of 216 billion euros in 2013, while the United States ran up a deficit of almost $400 billion.
"That the euro was the strongest major currency in 2013 is easily - with all the benefit of hindsight - explained by this current account and equity flow gap," Ruskin said.
"For USD strength to broaden and also encompass the euro, a turn in the 'equity gap' is one precondition."
For now, the euro was fighting to keep its title as strongest currency. It jumped 0.6 percent against the pound to 0.8362 sterling after a soft reading on UK inflation argued against an early rise in interest rates there.
It also climbed 0.8 percent against the yen to 140.86 , helped in part by the Bank of Japan's decision to extend and expand a scheme to promote bank lending.
The move was taken as a sign that the central bank was open to further easing steps, which many expect will be needed once an increase in Japan's sales tax is enacted in April.
Even the dollar managed to gain some ground on the yen at 102.39, though it could not sustain a peak of 102.75.
There was little in the way of major data due in Asian hours on Wednesday, though dealers will be carefully watching China's central bank after it drained funds from the money market on Tuesday.
The People's Bank of China (PBOC) is trying to engineer a gradual upward shift in the cost of money to encourage companies to deleverage and discourage high-risk shadow banking activity.
Investors are anxious in case the tightening goes too far and hurts economic growth, concerns that have periodically put pressure on currencies across the Asian region.
Later Wednesday, the Fed will release minutes of its January policy meeting when it decided to trim its asset buying by another $10 billion.
Fed Chair Janet Yellen has since indicated that the tapering will continue, as long as the U.S. economy improves as expected, and the minutes are likely to reflect that outlook.