* Australian dollar eases after China raises interest rates
* Euro supported by Asia demand, shaken by German data
* Analysts: Rising UST yields may give near-term USD boost
(Updates prices, adds quote)
By Naomi Tajitsu
LONDON, Feb 8 (Reuters) - The Australian dollar fell on
Tuesday after a surprise Chinese interest rate rise spurred
speculation growth in the world's No. 2 economy may slow, while
the euro rose against the dollar, boosted by Asian demand.
Other major currencies were little affected after China's
central bank raised its benchmark one-year deposit rate by 25
basis points to 3 percent. The hike was its second increase in
just over a month as policymakers step up their fight against
stubbornly high inflation. []
While investors have been anticipating a gradual tightening
in Chinese monetary policy, analysts said riskier currencies
including the commodity-driven Australian dollar would be most
vulnerable to such moves.
"Tighter monetary policy suggests weaker growth, and this
plays negatively for commodities," said Paul Robson, strategist
at RBS.
"Australia relies heavily on bulk commodities, so a slowing
Chinese economy would take the edge off that at a time when
markets are looking at deteriorating short-term economic data in
Australia due to the floods the country has been dealing with."
The Australian dollar <AUD=D4> fell more than half a U.S.
cent after Beijing's announcement to around $1.0120, shedding
earlier gains to trade weaker on the day. Near term support is
seen at $1.0083, last Friday's low.
The euro <EUR=> also dipped on the China rate hike news, but
quickly recovered to trade 0.5 percent higher at $1.3648.
Traders said Asian investors, including sovereign names, bought
the euro as players in the region have been selling the dollar
since returning on Monday after the lunar new year holidays.
But gains were muted after much weaker-than-expected German
industrial output for December. That followed a dismal
industrial orders survey the previous day which had led to a
sell-off in the common currency and saw it drop to a two-week
low of $1.3508.
The dollar struggled across the board, falling 0.3 percent
against its currency basket <.DXY>, while shedding ground
against the yen <JPY=> to 82.17.
EURO CONCERNS
Traders are reluctant to buy the dollar aggressively, after
Federal Reserve Chairman Ben Bernanke said last week that the
U.S. economy still needs the Fed's help -- a stance he is
expected to repeat when he speaks on Wednesday.
Still, the dollar is likely to be supported on the back of a
spike in U.S. yields. The 10-year U.S. yield <US10YT=RR> hit a
nine-month high of around 3.7 percent on Monday, and money
markets have started to price in a chance of a U.S. rate hike
later this year.
While the euro recovered on Tuesday, it remains well below a
12-week high of $1.3862 hit last week, and analysts say the
single currency will struggle to pick up its rally after
European Central Bank President Jean-Claude Trichet last week
doused expectations for an imminent interest rate rise.
ECB Governing Council member Yves Mersch argued on Monday
the central bank could raise rates before it ended measures to
support liquidity, but analysts say the euro zone economy is too
weak to withstand a rate rise in the near term. []
Some said the single currency may stumble if European
leaders are unable to agree next month on a plan to strengthen
the bloc's economy and its debt rescue fund, the European
Financial Stability Facility.
"Peripheral risks should continue to haunt euro as well,"
said Valentin Marinov, currency strategist at Citi. "The
upcoming elections in Ireland and Germany have already prompted
comments by various politicians which could point at potential
turbulent times for euro in the weeks ahead."
(additional reporting by Anirban Nag)
(Editing by John Stonestreet)
