UPDATE 1-Swiss franc hits 33-month high after U.S. adds it to watchlist

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LONDON, Jan 14 (Reuters) - The Swiss franc rose on Tuesday to its strongest against the euro since April 2017, after the United States added Switzerland to its watchlist of currency manipulators.

Analysts were divided as to the reasons for the franc’s rally.

Neil Mellor, a currency strategist at BNY Mellon, said inclusion on the watchlist might discourage the Swiss National Bank from intervening to try and limit the franc’s strength.

“The market’s natural inclination would be to buy the franc,” said Mellor.

The Swiss currency is considered a safe place by investors to put money when markets turn nervous because of Switzerland’s large current account surplus. That forces the SNB to regularly intervene to limit franc appreciation and protect its export-dependent economy.

Other analysts said that Switzerland’s inclusion on the watchlist, after the U.S. Treasury had earlier removed it, had long been expected, and instead cited general safe-haven flows.

“At the moment we are seeing weakness in the South African rand and some weakness in the Turkish lira, therefore moves in the FX market might be less optimistic on risk-on factors,” said Commerzbank FX strategist, Ulrich Leuchtmann.

The timing of the move was also confusing. The franc had been firmer throughout the day, then gained in European mid-morning trade, long after the U.S. watchlist’s publication late on Monday.

By 1145 GMT, the euro had dropped more than 0.4% to 1.0763 francs, leaving the Swiss currency at its strongest in almost three years.

The franc also rose against the dollar. The dollar was last down 0.4% at 0.9669 francs, although that was some way off the franc’s 16-month high of 0.9647 on Dec. 31.

The U.S. Treasury Department said it had added Switzerland to a list of countries where it had continued concerns about currency practices - Germany, Ireland, Italy, Japan, Malaysia, Singapore, South Korea and Vietnam.

The Swiss National Bank declined to comment on the country’s inclusion on the watchlist.

There have been some signs of a more hands-off approach by the bank in recent months, however. Franc sight deposits at local banks, a proxy for measuring SNB interventions, have fallen by around eight billion francs since the end of October.

Reporting by Yoruk Bahceli and Tommy Wilkes; additional reporting by John Revill in Zurich; editing by Sujata Rao, Larry King