* Dollar gains vs yen, investors focus on G7 meeting
* Euro shrugs off record euro zone GDP fall
* Sterling off highs after Lloyds news
(Recasts; updates prices, adds comment, changes byline)
By Nick Olivari
NEW YORK, Feb 13 (Reuters) - The dollar climbed against the
yen on Friday, boosted by bets that Group of Seven finance
chiefs may single out the Japanese currency for excessive
strength at this weekend's meeting.
The U.S. currency was also bolstered against the yen by
optimism about a government program to subsidize mortgages for
homeowners even as investors shifted their focus to the
gathering of Group of Seven monetary officials in Rome.
"Watch for language from the G7 to support open markets,
open trade, and open capital flows," said Andrew Busch, global
FX strategist at BMO Captial Markets in Chicago in a note to
clients. "However, there's a strong probability that the
communique will have a sentence on the Japanese yen and the
British pound."
Earlier in the week, Japanese Finance Minister Shoichi
Nakagawa said Japan will act decisively against excessive
currency moves, but suggested singling out the strong yen in a
G7 communique would not work while the damage from the global
economic crisis is spreading.
UK Chancellor of the Exchequer Alistair Darling said on
Friday that he believed any discussion of foreign exchange
would be "in general terms."
Still, traders were not taking any chances.
The yen has edged lower so far in 2009, down about 1.6
percent against the dollar at current prices. But in 2008, the
yen, perceived as a safe haven along with the dollar, had
rallied 23 percent.
In mid afternoon New York trading, the dollar rose 1.2
percent against the yen to 91.97 yen <JPY=>. The euro also
gained, up 1.6 percent at 118.70 <EURJPY=>.
STERLING RALLY
Analysts said the bleak euro zone GDP figures had also
raised concerns G7 leaders may discuss the pound's recent
weakness against the euro.
In fact, sterling rallied, with investors squaring market
positions ahead of the G7. For details, see []
But the pound came off its highs pressured by sharp falls
in UK banking stocks after Lloyds Banking Group unveiled a
hefty loss related to its HBOS subsidiary.
Lloyds said HBOS lost about 8.5 billion pounds last year,
news which sent shares in Lloyds and other UK banks tumbling
and pushed the UK's FTSE share index into the red.
Sterling last traded at $1.4382 <GBP=>, up 0.9 percent. The
euro fell 0.5 percent against sterling to 0.8970 <EURGBP=>.
Other analysts though said they do not expect any major
pronouncements on the yen and sterling, and once the meeting
ends markets will look to equities again for direction.
"We are still hinging on risk appetite and we are keying
off equities," said Shaun Osborne, chief currency strategist,
at TD Securities in Toronto.
"That story on mortgage subsidy gave equities a lift
including the dollar versus the yen and there's still some
carry-over from that."
Investors tend to sell the dollar and yen with increased
optimism for global economic prospects.
Markets welcomed the news that the Obama administration may
unveil a broad plan to put a floor under the housing market.
[]
A rising wave of U.S. mortgage delinquencies has saddled
the global banking system with big losses that have led banks
to recoil from lending, choking economies around the world.
The euro rose 0.3 percent <EUR=> against the dollar to
$1.2902, generally shrugging off data showing the euro zone
economy in a deeper recession than expected.
(Additional reporting by Gertrude Chavez-Dreyfuss)
(Editing by Theodore d'Afflisio)
