* SNB sees 9-month book profit of 16.9 bln Sfr
* SNB's Q3 euro holdings slip to 49 pct, dlrs up to 28 pct
* SNB profit bolsters franc cap policy
(Adds SNB reserve allocation data, analyst quotes)
By Catherine Bosley
ZURICH, Oct 31 The Swiss National Bank has made
a hefty nine-month profit and trimmed euro holdings in favour of
dollars and sterling in its huge foreign exchange reserves built
up to weaken the franc.
The diversification and profit bolster the SNB's drive to
keep the safe-haven franc capped at 1.20 per euro, a limit set
more than a year ago to ward off deflation and recession.
"Today's policy can be continued, for sure," Credit Suisse
economist Maxime Botteron said after Wednesday's data.
SNB reserves this year have risen 70 percent to
429.9 billion Swiss francs ($461.8 billion), equivalent to
almost three-quarters of national output, as it bought billions
of euros to stop the franc strengthening past 1.20 per euro.
Yet an easing of market tension in the euro zone in
September has seen the franc weaken towards 1.21 per euro,
stemming the need for the SNB to intervene and allowing it to
diversify out of euros.
Thanks to the weaker franc, the central bank said on
Wednesday it recorded a gain of 10.3 billion francs on its
foreign currency positions for the first nine months, helping it
to record a book profit of 16.9 billion for the period.
The SNB also said it cut its holdings of euros to 49 percent
in the third quarter from 60.1 percent in the second, while its
holdings of dollars rose to 27.6 percent from 21.7 percent and
of British pounds to 6.7 percent from 3.3 percent.
"This rapid pace of diversification ... could suggest SNB
policymakers are specifically concerned about risks emanating
from the euro zone rather then portfolio balance," said
Swissquote analyst Peter Rosenstreich.
The larger the SNB's euro holdings, the bigger the risk of
it suffering huge losses if the euro zone were to break apart.
In September, the SNB rejected a report by ratings agency
Standard & Poor's that its buying of euro assets had helped to
push down yields on "core" euro zone bonds.
The bulk of the SNB's foreign currency reserves are held in
highly-rated government debt. It increased its equity holdings
to 12 percent from 10 percent during the third quarter.
The SNB is a joint-stock company that has to report results
to its shareholders, most of whom are Switzerland's 26 states,
or cantons. They have come to rely on an annual dividend from
the central bank to help support their budgets.
In 2010, the bank came under heavy fire after it ran up a
record loss of 27 billion francs on its currency holdings as it
intervened to try to weaken the franc, resulting in calls for
then Chairman Philipp Hildebrand to resign.
Yet the SNB's policy of putting a lid on the franc since
September 2011 has drawn broad support in Switzerland. It has
helped to stabilise the economy and the bank has managed to post
profits despite the ballooning of its balance sheet. It made a
profit last year of 13.5 billion francs.
"If the exchange rate holds, then the likelihood rises that
they will make a profit at the end of the year. And then the
political pressure won't grow," said Botteron at Credit Suisse.
The SNB is trying to diversify its portfolio further and
its holdings of other currencies - including Swedish and Danish
krona, Australian and Singapore dollars, and South Korean won -
rose to 4.2 percent in the third quarter from 3.4 percent.
($1 = 0.9310 Swiss francs)
(Editing by Emma Thomasson and Stephen Nisbet)