* Euro falls to $1.4028 then recovers
* Obama proposes limits on bank risk-taking, dollar falls
* Spreads widen on Greek, Spanish and Portuguese bonds
(Adds comments, details, updates prices, changes byline)
By Vivianne Rodrigues
NEW YORK, Jan 21 (Reuters) - The U.S. dollar fell sharply
versus the yen and erased gains against the euro on Thursday
after U.S. President Barack Obama announced plans to limit risk
taking at certain financial institutions.
Investors feared the plans would limit U.S. bank profits
and that helped the euro recover from a nearly six-month low at
$1.4028. The yen rose across the board as investors cut risky
trades, some of which were funded with the Japanese currency.
Obama's proposals included preventing major banks from
owning, sponsoring or investing in hedge funds for their own
profit. For more see [].
"The dollar is taking it on the chin after these comments,
as the implication is they are negative for bank profitability.
Everyone was looking for the dollar to continue rallying but
the mood has definitely soured," said Shaun Osborne, senior
strategist at TD Securities in Toronto.
In afternoon trading in New York, the dollar was down 1
percent at 90.32 yen <JPY=> after trading as high as 91.87 yen
in the global session. The euro was down 0.9 percent at 127.54
yen <EURJPY=>, its lowest since December, but it rose to
$1.4118 <EUR=> after approaching a six-month low.
Dollar losses were slimmer against the euro, which suffered
from worries about Greece's public finances. Greece faces a
huge public deficit and its borrowing costs have soared in
recent days. Its government said Thursday it would take all
necessary measures to rein in its deficits and put the economy
back on track.
"This Greek 'tragedy' continues to worsen and there's no
real resolution in sight," said Jessica Hoversen, fixed income
and currency analyst at MF Global Ltd in Chicago.
Hoversen said that despite the euro's rebound on Thursday,
sentiment on the euro zone single currency remains "quite
bearish." She noted the currency has traded below key support
levels in the past couple of days and said another move lower
may bring it to the next support level around $1.4045.
STOCKS, CHINA
U.S. stocks were down sharply on Obama's remarks, which
helped dim optimism seen earlier after China said its economy
grew 10.7 percent in the fourth quarter. []
Analysts, however, said investors are still worried China
may try to tighten monetary policy in the months ahead, which
could hurt risk appetite.
"The positive impact from the stronger-than-expected growth
in China was upset by fears that authorities could begin to
tighten policy," said Vassili Serebriakov, a senior currency
strategist at Wells Fargo in New York.
"Any suggestion that the engine of the global economy could
slow down will be bad for the growth-sensitive and
commodity-linked currencies," he added.
Elsewhere, the commodity-linked Australian dollar fell 0.5
percent to $0.9040 <AUD=> as risk aversion hurt commodity
prices, while sterling fell 0.4 percent to $1.6216 <GBP=>.
"It's not entirely clear where we go from here," said
Osborne. "It's not been a good day for the dollar, for the
euro, or for the commodity currencies."
(Additional reporting by Steven C. Johnson and Michael
O'Boyle; Editing by James Dalgleish)
