FOREX-Yen gains as stocks wobble, Swedish crown firm after inflation data

Thu Jul 10, 2014 7:27am EDT

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(Recasts, adds fresh quotes)

* Yen at 3-week high vs euro, stocks drop, Portuguese yields rise

* Fed minutes indicate bond-buying will end in October

* Swedish crown at 1-week high after inflation data

By Anirban Nag

LONDON, July 10 (Reuters) - The yen rose to a three-week high against the euro on Thursday as investors sought safety following weak Italian economic data and concerns about Portugal's largest listed bank that hit European shares.

The euro also weakened against the dollar, itself under pressure after minutes of the Federal Reserve's June meeting gave no clear signal on the timing of an interest rate rise.

Data showing consumer prices in Sweden rose more than expected last month meanwhile pushed the Swedish crown to a one-week high against the common currency. That drove some investors to trim short bets against the crown made after Sweden's central bank cut interest rates sharply last week.

Volumes were largely seen in the safe-haven yen, against which the dollar fell 0.3 percent to 101.255 yen, its lowest this month. The euro dropped 0.5 percent to 137.84 yen , its lowest since June 16.

Portuguese bond yields rose while shares in Lisbon fell after shares and bonds of the chief shareholder in Banco Espirito Santo were suspended over "material difficulties" at its parent company ESI.

Italy's benchmark stock index fell 2.4 percent after data showed Italian industrial output posted its steepest monthly decline since November 2012, casting doubts over the country's economic recovery.

Worries about BES and Italy's economy reminded investors the region's debt problems were far from over.

"Concerns about Banco Espirito are causing a bit of risk-off trade," said Alvin Tan, currency strategist at Societe Generale.

The euro shed 0.2 percent to $1.3615 after rising to a one-week high of $1.3649 when the Fed minutes were released.

The minutes confirmed the U.S. central bank's monthly bond purchases would probably end in October and showed policymakers had debated the complexities of unwinding a stimulus programme that has flooded the financial system with over $2 trillion.

The uncertain outlook for the timing of a first Fed rate move has kept a lid on Treasury yields, with the two-year yield hovering near three-week lows at around 0.45 percent.

"Anyone expecting anything hawkish from the Fed minutes would be disappointed," said Jeremy Stretch, head of currency strategy at CIBC World Markets. "Unless Treasury yields start moving up, to reflect the better data from the United States, it would be a rather frustrating time for dollar bulls."

SWEDISH SURPRISE

Swedish consumer prices rose 0.2 percent in June from the previous month and were up 0.2 percent from the same month last year, easing some concerns about deflationary pressures in the economy.

The euro fell to 9.2127 crowns from around 9.2690 crowns before the inflation data was released, down 0.5 percent on the day. The crown had hit a 3-1/2 year low against the euro last week after the Riksbank surprised investors by cutting its benchmark repo rate by 50 basis points.

"We would recommend investors to fade into the Swedish crown's rally as the central bank is unlikely to tolerate any additional tightening that can come through the currency's rise," UBS currency strategist Geoff Yu said.

The Australian dollar shed 0.5 percent to $0.9367 after figures showed unemployment rose to 6.0 percent last month. Putting further pressure on the Australian currency, trade data from China, the country's largest trading partner, showed exports grew less than expected in June. (Editing by Catherine Evans)

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