Forex - Major currencies trade in a range; dollar little affected by data

LONDON (AFX) - The major currencies remained steady in the afternoon, with the dollar little affected by a mixed set of US data.

US productivity rose at an annual rate of 1.6 pct in the October-December period, about as expected, although labour cost growth at an annual 6.6 pct rate was far above the consensus for 3.2 pct. Meanwhile, factory orders fell 5.6 pct in January, beyond the 4.5 pct drop expected by analysts.

The dollar softened slightly on the data. However, movements were limited as investors are seen to be largely overlooking the data flow in favour of news from the equities and commodities markets.

These have risen today, easing market jitters and weighing on the yen as investors feel it is safe enough to sell the Japanese currency in order to seek higher returns elsewhere.

"Investor appetite for risk appears to have rebuilt a little," said Steve Pearson at HBOS.

However, analysts are wary to believe that the recent market turbulence -- and the yen's resulting strengthening -- is finished.

"Markets are still not out of the woods yet," and with sentiment still tentative it is going to take something substantially positive to turn confidence around, said David Brown at Bear Stearns.

"With market uncertainty running so high, risk aversion, flight to quality and safe haven should remain the dominant trend," he added.

The euro and the pound were also stable ahead of rate decisions by the European Central Bank and Bank of England on Thursday.

The ECB is widely expected to hike, although the market is wondering how many more rate increases they can deliver. The BoE, for its part, is not expected to hike this week but in later months, but markets have there too been paring back their future rate expectations in light of mixed data recently.

The view that the monetary tightening cycle in Europe may soon come to an end means that the yen and the Swiss franc, usually sold against the euro and the pound to fund investments, may rally further.

"If rate spreads over Japan and Switzerland start to narrow, because both central banks in these funding currencies continue to tighten, it could prolong the pressure on the carry trade," meaning a stronger yen and Swiss franc and a weaker pound and euro, said Brown at Bear Stearns.

London 1615 GMT London 1325 GMT

US dollar

yen 116.33 down from 116.47

sfr 1.2230 down from 1.2238

Euro

usd 1.3111 up from 1.3102

yen 152.52 down from 152.60

sfr 1.6035 up from 1.6034

stg 0.6806 up from 0.6798

Sterling

usd 1.9264 down from 1.9274

yen 224.11 down from 224.49

sfr 2.3562 up from 2.3588

Australian dollar

usd 0.7733 up from 0.7725

stg 0.4014 up from 0.4008

yen 89.92 down from 89.94

carlo.piovano@thomson.com

cp/cp/slm