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Tuesday June 24, 2008 - 10:48:23 GMT
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FOREX NEWS-Euro hits 11-mth high vs yen, dlr awaits Fed

Tue Jun 24, 2008 6:35am EDT

* Broadly firm euro hits 11-month high vs yen

* Eyes on Fed statement due on Wednesday

* Geopolitical jitters, M&A talk support Swissie

(Changes byline, updates prices, adds quotes)

By Toni Vorobyova

LONDON, June 24 (Reuters) - The euro gained broadly on Tuesday, hitting an 11-month high versus the yen, as stronger than expected French data backed expectations of a European Central Bank interest rate hike next week.

French consumer spending posted its biggest monthly rise in 4-1/2 years in May and French June business morale data also surprised on the upside. The releases reassured investors about the health of the euro zone economy following Monday's weak readings on the euro zone PMIs and on the German Ifo.

Firm expectations of a July ECB rate hike to 4.25 percent contrast with bets that Japanese policy will remain at an ultra-low 0.5 percent until at least the end of the year.

In the United States, markets are nervous ahead of a two-day Federal Reserve meeting starting on Tuesday, which some in the investors reckon will pave the way for future tightening.

"Yields in almost every other country are higher relative to Japan...which is why the yen have been performing poorly," said Adarsh Sinha, currency strategist at Barclays Capital.

"Oil prices are slightly higher and that tends to be associated with a strong euro against the dollar...(And) data from France was a bit stronger than expected, so that's helping the euro as well. But it's quite a small move, and that's to be expected given the FOMC rate decision tomorrow," he added.

The euro rose as high as 168.26 yen according to Reuters data, its strongest since July 2007 <EURJPY=>.

By 1007 GMT it was a quarter percent higher versus the dollar at $1.5563 <EUR=>, having recovered most of the losses sustained in the wake of Monday's weak euro zone data.

The euro also added 0.3 percent against sterling to 79.23 pence <EURGBP=>.

The dollar fell as much as half a percent to 1.0394 francs <CHF=>, with the Swissie benefiting from talk of Swiss bank UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) being a potential big target for HSBC (HSBA.L: Quote, Profile, Research, Stock Buzz) as well as from geopolitical jitters.

Traders said the safe haven franc was bought on market talk of a strike on Iran's nuclear sites -- but the rumours were denied by a senior Iranian nuclear official [ID:nHAF435539].


Against a basket of major currencies, the dollar slipped 0.15 percent to 73.322 .DXY.

Although markets are factoring in just a 12 percent chance of a Fed rate hike on Wednesday FEDWATCH, they expected the Fed to pave the way for nearly 75 basis points worth of hikes priced in by year-end.

But some analysts said the U.S. central bank might be less hawkish than some in the market are expecting.

"We expect this week's FOMC meeting to disappoint the market's expectation of three U.S. rate hikes before the end of the year," said UBS analysts in a report.

"In contrast the ECB is likely to raise interest rates next month so the euro should trade back towards the top of its $1.53/1.60 range. This will also drag euro/yen up as the Bank of Japan, like the Fed, is unlikely to raise interest rates."

Their view could be confirmed by weak U.S. data on Tuesday, with the calendar featuring April S&P/CaseShiller house price index and June consumer confidence.

(Editing by Gerrard Raven)

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