* Aussie tumbles as Egypt riots hit risk appetite
* Dollar, Swiss franc, yen seen favoured
* Analysts say Egypt unrest could be repeated elsewhere
By Hideyuki Sano
TOKYO, Jan 31 (Reuters) - The euro dipped and high-yielding
currencies tumbled on Monday as investors tried to exit positions
associated with high levels of risks on fears that social unrest
in Egypt could spread across the Middle East.
As street protests in Cairo showed no sign of abating,
investors were increasingly worried that political upheaval could
hit other Arab countries, potentially disrupting oil production
and heightening diplomatic tensions in the region.
"This will not be limited to Tunisia and Egypt. This could
spread to other countries, which could make the whole Middle East
unstable," said Mitsuru Saito, chief economist at Tokai Tokyo
Securities.
The euro <EUR=> fell as low as $1.3571, having fallen about
0.2 percent from a New York close of $1.3608 on Friday, extending
its decline further from a two-month high of $1.3760 marked last
week.
It also eased to 1.2794 Swiss francs <EURCHF=>, from 1.2824,
and to 111.38 yen <EURJPY=> from 111.74 on Friday.
"Any worsening in fears over stability in the Middle East
would further dampen risk appetite, providing support for safe
haven currencies like the U.S. dollar, Swiss franc and yen," said
Bank of New Zealand currency strategist Mike Jones in Wellington.
The high-yielding and growth-linked Australian dollar fell
0.6 percent to $0.9880 <AUD=D4>, while the New Zealand dollar
also dropped 0.6 percent to $0.7692.
"High-yielding currencies and emerging market currencies will
come under pressure today," said Koji Fukaya, chief FX strategist
at Credit Suisse in Tokyo.
"Investors will try to close positions associated with higher
risk. I assume the market was a little bit long on the euro and
therefore we are seeing some selling there."
The dollar held steady against the Swiss franc and the
Japanese yen.
The greenback changed hands at 82.12 yen <JPY=>, flat from
late in New York Friday. The U.S. currency stood unchanged
against the franc at 0.9420 franc <CHF=>.
Traders are keeping en eye on headlines from Egypt as
thousands defied a curfew, which state television said would be
extended by an hour from Monday, demanding that President Hosni
Mubarak quit.
"I just think it's a no-win situation. If Mubarak stays in
power you're going to have a lot of turbulence and turmoil and
demonstrations," said Andrew Brenner, head of emerging markets
fixed income, Guggenheim Securities in New York.
"If Mubarak steps down you're going to have a continued move
to fundamentalists," he added.
SPREADING UNREST
Some investors fear that what's happening in Egypt could be
repeated elsewhere, which could threaten their investments in
many emerging markets -- one of the most lucrative strategies
last year.
"Behind the unrest is anger against inflation, which is
hurting many people in developing countries. The trouble is, that
is also happening in countries like India and China, too," said
Tokai Tokyo Securities' Saito.
"A flood of money created in the developed world has been
flowing to emerging markets. But if those markets turn out to be
politically unstable, that money flow will drastically change."
Market players are also aware that selling in some emerging
market bonds could escalate to a self-feeding spiral, much like
in 2008, when investors had to sell many risky assets to cover
losses elsewhere.
"That's what we saw all back on in '08. You had money
managers, you had margin calls on certain things and they would
sell other things. That's what's going on and I think that's what
we're going to see for the next few days. Flight to quality and
the dollar should benefit from it." said Guggenheim's Brenner.
Gulf stock markets tumbled on Sunday as investors, rattled by
turmoil in Egypt and concerns the unrest may spread, quit their
positions to push indices to multi-week lows.
Most Asian shares fell more than one percent on Monday, after
Wall Street's benchmark S&P 500 <.SPX> notched its biggest
one-day loss in six months on the flight to safety on Friday.
The Egyptian crisis is seen as having the potential to
overshadow broader and more fundamental economic events this
week, which include a slew of economic data such as U.S. non-farm
payrolls and central bank decisions.
(Additional reporting by Burton Frierson in New York, Gyles
Beckford in Wellington; Editing by Joseph Radford)
