* Aussie biggest gainer as sell-off pauses
* Dollar inches up against yen, holds above Monday’s 7-week low
* Turkish central bank stems tide by calling emergency meeting
* Fed meeting may be next trigger for emerging worries
By Patrick Graham
LONDON, Jan 28 (Reuters) - The dollar regained a firmer footing against the yen on Tuesday as investors took a breather from a sell-off of stocks and emerging market assets that has driven money into traditional safe haven currencies.
European shares bounced back after three days which have knocked 3.5 percent off the MSCI world stock index and hammered the developing world’s more fragile economies including Turkey, Argentina and Ukraine.
That has benefited the euro, dollar, yen and Swiss franc while hurting currencies more closely linked to commodity prices and growth in emerging markets like China, such as the Australian dollar.
The Aussie, helped by an upbeat business survey, rose 0.7 percent against its U.S. counterpart on Tuesday.
The main factor halting the stocks sell-off, broadly a response to the prospect of tighter monetary policy in the developed world, were signs of a potential policy response from Turkey at an emergency central bank meeting set for 2200 GMT.
But with the U.S. Federal Reserve expected on Wednesday to signal it will continue to rein in its huge bond-buying programme this year, analysts said any respite may be brief.
“When one central bank takes action to stem the tide, that will tend to have a knock-on effect for the others,” said Stephen Gallo, FX strategist at BMO Capital Markets in London.
“But with the Fed message tomorrow unlikely to be dovish, I wouldn’t rule out another move (later this week).”
The yen still tends to be investors’ first choice as a safe haven for their money in times of stress and it hit a seven-week high against the dollar on Monday. The dollar recovered about half a percent on the day.
“We still see a bigger than expected slowdown in Asia as a risk here and gains for the yen would be the main transmission mechanism for that (in currency markets),” said Ian Stannard, strategist with Morgan Stanley in London.
“We remain dollar bullish this year but there is the potential for the yen to move higher in the next few weeks.”
Some investors have been playing the Aussie and Kiwi off against each other in recent weeks, judging the Australian currency’s fall to be nearing an end and hikes in New Zealand interest rates to be largely priced in.
Stannard said backing the yen against the Aussie would be one way to play expectations that the flood of money out of emerging markets will continue.
But worries over how the Australian economy will hold up in the face of slackening commodity markets and a slowdown in China were eased somewhat by the NAB measure of business conditions, which jumped to its highest in more than 2-1/2 years.
The Aussie dollar rose to $0.8796, pulling away from Friday’s low of $0.8660, its lowest level since July 2010.
Sterling has rebounded from a dip at the end of last week but growth numbers provided little new stimulus for the market after a run of data that has prompted many investors to bring forward their expectations of a first rise in UK interest rates.
The fourth quarter expansion was bang in line with a 0.7 percent consensus forecast and sterling remained within striking distance of 2008 highs above $1.66, although it inched down to $1.6563 against the broadly strong dollar on Tuesday.
“Taken as a whole the advanced GDP print should keep market betting on early removal of monetary stimulus by the BoE,” Citibank analysts said in a note. “This should keep sterling supported for now.”