FOREX-Euro, Swiss franc dip as bank jitters spread to Europe

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By Simon Falush

LONDON, April 1 (Reuters) - The dollar rose on Tuesday after Swiss bank UBS (UBJYL.PK) announced an additional $19 billion of writedowns and Deutsche Bank said it expects to write down a larger than forecast $4 billion in the first quarter, showing that credit problems are not limited to the United States.

The dollar also got a boost from investors selling gold XAU= and crude oil CLc1 and putting their money back into cash.

Turmoil in the U.S. banking sector driven by defaults in subprime mortgages have led to multi-billion dollar write-downs by U.S. banks and a lack of confidence in the economy leading investors to sell the dollar.

But the writedowns in Deutsche and UBS -- which has now written down a total of $37 billion -- reminded investors that European economies also remain vulnerable to the financial crisis, said analysts.

"The dollar got support from credit concerns, with the UBS writedown indicating that problems may spread beyond a few banks," said David Pais, currency strategist at Citi.

By 1120 GMT the dollar was up 1.2 percent at 1.0054 francs CHF=. The euro was down 0.8 percent on the day at $1.5646 EUR=, after rising as high as $1.5895 on Monday according to Reuters data.

The dollar also gained 0.6 percent against the yen breaking through the psychological 100 barrier JPY=.

The Bank of Spain said the fall in the value of the U.S. dollar against the euro and yen was "very pronounced" in early March adding to recent comments from European policymakers about the euro's rapid ascent.

The euro and Swiss franc also faced headwinds from soft data showing slow German retail sales, and falls in French, Italian, Spanish and Swiss manufacturing PMIs.

ISM IN FOCUS

The dollar registered its biggest quarterly loss versus the euro in four years on Monday. This followed data showing a sharp gain in euro zone inflation which suggested a continued divergence in monetary policy between the rate-slashing Federal Reserve and the hawkish European Central Bank.

Analysts said more dollar weakness could follow soon, particularly if the U.S. Institute for Supply Management's manufacturing index disappoints at 1400 GMT. The consensus is for it to contract further to 47.5 -- its lowest in nearly five years.

However the falling gold price may mean that the euro will fail to get a boost from a weak ISM number, analysts said.

"The fall in gold overnight has been matched one-for-one by the single currency's retreat and if investors' concerns now truly lie with growth, then a negative outcome from today's ISM report on U.S. manufacturing would by no means automatically underpin a reversal in the euro's current fortunes," Bank of New York Mellon said in a research note.

The Australian dollar fell broadly after the country's central bank kept interest rates at a 12-year high of 7.25 percent, as widely expected, but issued a statement that reduced expectations of a further rate rise.

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The Aussie was down 0.35 percent at US$0.9095 AUD=. (Editing by Ian Jones)