* Euro hits 2-1/2 mth low vs dlr as economy, bank woes weigh
* Sterling down as BoE minutes show unanimous vote for QE
* Yen fails to benefit from safe-haven flows
(Adds quote, updates prices)
By Kirsten Donovan
LONDON, Feb 18 (Reuters) - The euro hit 2-1/2 month lows
versus the dollar on Wednesday on banking system and economic
concerns and sterling fell broadly after minutes of the Bank of
England's last policy meeting suggested quantitative easing is
imminent.
Markets remained edgy with European equities falling
<> but the Japanese yen failed to benefit from flows into
perceived safer-haven assets after more gloomy regional economic
data.
Sentiment remained weak for the euro as banks remained
crippled by soured assets and a global economic downturn showed
no real sign of recovery.
"Sentiment towards the euro remains very poor, the eastern
European situation as well as the whole issue of diverging bond
yields in the the euro zone continues to weigh and those
concerns for the near-term will continue to push the euro
lower," said Lee Ferridge, an FX strategist at State Street
Global Markets.
By 1200 GMT the euro was up 0.1 percent at $1.2601 <EUR=>,
having fallen to $1.2557, its lowest since December 4. The
single currency was up 0.4 percent at 116.77 yen <EURJPY=R>.
Sterling was down 0.2 percent at $1.4216 <GBP=> after
hitting a low of $1.4094. The euro was up 0.3 percent at 88.64
pence <EURGBP=>.
Minutes from the BoE's February interest rate-setting
meeting showed policymakers voted unanimously to seek government
consent for so-called "quantitative easing" through buying gilts
and other securities [].
"It's not certain as yet whether (the BoE) will stick at 1.0
percent or cut one more time in March. But in many respects that
is a side issue and the main thrust of monetary action now will
be under the quantitative easing channel," said David Tinsley,
UK economist at NAB Capital.
News from the banking sector was mixed. France's Societe
Generale <SOGN.PA> eked out a small profit in the fourth
quarter, while ING <ING.AS> of the Netherlands and Germany's
Commerzbank <CBKG.DE> reported losses [].
The euro was also pressured by the possibility that Moody's
Investors Service's may downgrade euro zone banks with
significant exposure to the weakening economies in Eastern and
Central Europe and that Standard & Poor's may review emerging
Europe bank ratings []
Jitters generated by the report were evident as the premiums
demanded by investors to hold government bonds issued by euro
zone countries other than Germany rose again on Wednesday, with
the yield spread of Austrian, Spanish and Greek bonds over Bunds
hitting record premiums. Meanwhile the cost of insuring the debt
against a default held near record highs.
YEN LOSING LUSTRE?
The dollar was up 0.35 percent at 92.68 yen <JPY=> after
rising to a more than one-month high of 92.75 yen on Tuesday.
Some analysts said the yen may be losing its lustre as a
perceived "safe-haven" currency as investors became more wary
after a steep contraction in Japan's economy.
"We are becoming increasingly worried that the slowdown in
Japan is becoming so severe and the current account surplus is
narrowing so quickly that the yen is no longer seen as a
defensive play in times of crisis," said Chris Turner, head of
forex strategy at ING.
Japan's economy shrank a stunning 3.3 percent in the
October-December quarter of 2008 from the previous three months,
or an annualised minus 12.7 percent.
The Bank of Japan will announce its latest interest rate
decision after a two-day meeting concluding on Thursday. It is
expected to keep key interest rates at 0.1 percent but possibly
take further steps to buy assets to bolster demand.
Analysts seem to agree the dollar will be in favour in the
near term, especially as a global economic slump continues.
Traders will watch U.S. housing starts data and industrial
production figures later in the day, which are expected to
reinforce the economic downturn. A recovery in the U.S. housing
sector is seen critical for any broader economic rebound.
Also on Wednesday, U.S. Federal Reserve Chairman Ben
Bernanke is scheduled to speak on the central bank's lending
programmes and its balance sheet, while minutes from the Fed's
January rate-setting meeting will be released.
Data on Tuesday showed foreigners bought a net $34.8 billion
in long-term U.S. securities in December, reversing outflows in
the prior month. That was tied to so-called safe-haven flows,
analysts said.
