* Yen down, Australian dollar and sterling up on data
* Dollar index regains footing after overnight fall
* Euro options talk
(Updates prices)
By Jamie McGeever
LONDON, Aug 28 (Reuters) - The yen fell broadly on Friday,
hit by weak economic data ahead of Japan's election, and
sterling drew relief at the end of a torrid month from data
showing Britain's economy shrank slower than previously thought.
The Australian dollar hit a two-week high on growing
expectations the Reserve Bank of Australia will raise interest
rates before the end of the year, and the Swedish crown jumped
after Swedish retail sales data easily beat forecasts.
The euro was flat on the day, as was the U.S. dollar index
against a basket of currencies.
Economic reports overnight showed Japanese deflation and
unemployment at record levels, and a sharp fall in household
spending.
With European stocks and oil up 1 percent or more and U.S.
stock futures pointing up, investors' appetite for risk
supported high-yielding currencies like the Australian dollar to
the detriment of others like the yen.
"The yen continues to change on global factors and swings in
the risk cycle ... and 'risk' currencies like the Aussie are up
again today," said Michael Hart, senior currency strategist at
Citigroup in London.
At 1150 GMT the dollar was up a third of a percent on the
day against the yen at 93.80 yen <JPY=> and the euro was up 0.4
percent at 134.65 yen <JPY=>.
The Australian dollar was up half a percent at $0.8445,
close to the two-week high of $0.8448 struck earlier <AUD=>.
Relatively strong domestic economic data and hawkish
comments from RBA policymakers have prompted a shift in market
expectations of when the central bank will hike rates, to
November from December.
EURO OPTIONS
Sterling was up half a percent against the dollar at $1.6350
<GBP=> after revised British gross domestic product figures
showed a slightly slower pace of contraction in the second
quarter [].
But the annual rate of GDP decline was still the biggest on
record and, although much of the recent British data has beat
forecasts, sterling will post in August its steepest monthly
fall this year against the dollar.
The euro was flat at $1.4355 <EUR=> and the U.S. dollar
index, a trade-weighted measure of the dollar's value against
six currencies, was also flat at 77.99 <.DXY>.
Traders cited talk of a euro/dollar options structure in the
market, held by a large Asian player, aimed at keeping the euro
below $1.4450 and above $1.3950 until the middle of next month.
"The longer the ranges persist, the bigger the embellishment
on these (options) rumours. There's definitely some barrier
protection up there, though," said Peter Frank, senior currency
strategist at Societe Generale in London.
"The data flow in general is conducive to a higher
euro/dollar."
Implied volatility on benchmark one-month euro/dollar
options this week fell below 10 percent for the first time in a
year.
The U.S. dollar recovered much of the ground lost in heavy
selling in New York late on Thursday. Traders had cited large
dollar selling against the Swiss franc by a U.S. bank and
rumours that hedge funds had unwound long dollar positions.
The dollar stood at 1.0561 francs, down 0.2 percent the day
but up from Thursday's 2009 low of 1.0529 francs <CHF=>.
Meanwhile, Sweden's crown rallied after domestic retail
sales far outstripped forecasts and producer price inflation
bounced back in July <ECONSE>.
The euro fell as low as 10.134 crowns from around 10.19
crowns before the data, but rebounded from technical support at
the 100-hour moving average at 10.13 crowns.
(editing by Lin Noueihed; Reuters Messaging:
jamie.mcgeever.reuters.com@reuters.net; +44 207 542 8510))
