January 30, 2009 / 7:08 AM / 11 years ago

FOREX-Risk aversion aids dollar, yen; kiwi hits 6-yr low

* Risk aversion buoys dollar, yen ahead of U.S. GDP

* Dollar dips vs yen as Nikkei drops 3 pct

* NZ dollar hits six-year low vs U.S. dollar

By Rika Otsuka

TOKYO, Jan 30 (Reuters) - The dollar rose against the euro on Friday as deepening concerns over the global recession prompted investors to shed risky assets and seek the harbour of the world’s most liquid currency.

The yen climbed across the board as a drop in stock markets sparked unwinding of carry trades, in which investors use low-yielding currencies such as the yen to fund purchases of assets and currencies with higher yields elsewhere.

The New Zealand dollar struck a six-year low against the U.S. dollar after Reserve Bank of New Zealand Governor Alan Bollard said there was room for more interest rate cuts. [ID:nWEL409589]

Worries over a prolonged global economic slump increased as government data showed that Japan’s industrial output plunged 9.6 percent in December, the biggest drop on record. [ID:nT99694]

The data came ahead of the U.S. government’s first snapshot of the economy in the fourth quarter, which is expected to show it at its weakest in 26 years. [ID:nN28529010]

U.S. gross domestic product, due at 1330 GMT, is forecast to show a 5.4 percent decline on an annualised basis, hit by plunging consumer spending as unemployment swelled.

“If U.S. GDP comes out much weaker than expected, risk aversion would increase and the yen would be the beneficiary,” said Toru Umemoto, chief FX strategist, Japan, at Barclays Capital.

“Bigger-than-expected negative U.S. growth will have a negative impact on the global economic growth.”

The euro fell 0.4 percent from late U.S. trade to $1.2906 EUR= after dropping more than 1 percent on Thursday.

It slid 1 percent to 115.35 yen EURJPY=R.

The euro took a hit on Thursday after billionaire investor George Soros told an Austrian newspaper the currency may not survive without a European Union plan to deal with toxic assets. [ID:nN29299007]

A comment from European Central Bank President Jean-Claude Trichet that the ECB could push interest rates below 2 percent also kept the currency on the back foot.

"The euro is likely to stay under selling pressure as there are expectations for a ECB rate cut this spring," said Osamu Takashima, chief currency strategist at Bank of Tokyo-Mitsubishi UFJ. The dollar fell 0.7 percent to 89.39 yen JPY= on a drop in stocks, while month-end dollar demand from Japanese companies limited losses.

Tokyo's Nikkei share average .N225 ended down 3.1 percent, posting a 9.8 percent drop on the month in its worst monthly performance since October.

The New Zealand dollar NZD=D4 hit a six-year low of $0.5077, according to Reuters data.

The kiwi later recovered most of the day’s loss to stand at US$0.5115 but it sank 1 percent to 45.85 yen NZDJPY=R. It struck an eight-year low of 45.03 yen last week.

The New Zealand central bank cut interest rates on Thursday by an aggressive 150 basis points to a record low of 3.5 percent to boost an economy deep in recession. (Additional reporting by Charlotte Cooper; Editing by Brent Kininmont)

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