* Dollar index <.DXY> holds key technical break
* Eyes on FOMC, Obama State of the Union address
* Regional German CPI points at benign inflation
(Adds quotes, updates prices)
By Neal Armstrong
LONDON, Jan 27 (Reuters) - The dollar held firm and the yen
gained broadly on Wednesday as investors shied away from riskier
assets on concerns about China tightening lending and U.S.
monetary and political wrangling.
European shares were down 0.3 percent following losses in
Asia and on Wall Street overnight.
"Asset markets are unsettled with knock-on effects into the
pro-cyclical and commodity currencies, and I'd be looking for
those currencies to continue to come under pressure", said Ian
Stannard, senior currency strategist at BNP Paribas.
By 1245 GMT, the euro was flat on the day at 126.06 yen
<EURJPY=R> after hitting a nine-month low of 125.25 yen. The
next downside target was seen near its April 2009 low of 124.38.
"Euro/yen and Aussie/yen in particular are vulnerable to a
more disorderly decline should we see further weakness, given
Japanese margin accounts on the Tokyo Financial Exchange were
holding near record longs on these two crosses as of Friday,"
analysts at RBC Capital Markets said in a note.
The yen trimmed gains versus the dollar to trade at 89.55
yen <JPY=> after hitting a six-week high of 89.14 yen on trading
system EBS.
News of artillery fire between North and South Korea also
helped the yen, a reaction traders said stemmed from a dip in
South Korean shares.
"In spite of Japan's insipid growth, chronic deflation, the
risk of more quantitative easing and threat of intervention, the
yen retains its safe haven status," State Street analysts said.
The euro hit a six-month low against the dollar, hurt by
concerns about the fiscal health of Greece and other peripheral
euro zone countries.
The premium investors demand to hold 10-year Greek debt
rather than benchmark Bunds hit a fresh euro lifetime high.
The euro <EUR=> later trimmed losses to trade flat on the
day at $1.4075, after hitting a low of $1.4022. Traders said
option-related demand was evident ahead of $1.4000.
Eurogroup head Jean-Claude Juncker told French business
daily Les Echos he was unhappy with imbalances that have
produced an overvalued euro. []
German consumer inflation data was due out later in the day,
with weaker regional numbers pointing to benign price pressures
in the euro zone this month. []
FED, OBAMA EYED
The U.S. Federal Reserve will conclude a two-day policy
meeting on Wednesday against the backdrop of a Senate debate
over Chairman Ben Bernanke's reconfirmation. Analysts expect a
statement due out at around 1915 GMT to show little change from
the last one. []
Markets also focused on U.S. President Barack Obama's State
of the Union address. [] Last week, Obama's
proposed reforms to curb risky bank lending spooked markets.
The dollar index <.DXY> <=USD> was unchanged at 78.44 after
closing above its 200-day moving average on Tuesday for the
first time since early May 2009.
Investors remained nervous tightening measures in China
could curb growth and demand for exports from other economies.
The Industrial and Commercial Bank of China, the country's
largest bank, said on Wednesday it had stopped rolling over some
loans to slow credit growth. []
The Australian dollar rose 0.2 pct against the U.S. dollar
<AUD=D4> as a rise in consumer prices reinforced views the
Reserve Bank of Australia will raise rates next week.
The Aussie also dipped below 80 yen, its lowest since
mid-December last year.
(Additional reporting by Tamawa Desai; Editing by Nigel
Stephenson)
