source: uk.reuters.com

Fri Jan 23, 2009 4:55pm GMT

* Dollar touches six-week high against the euro

* Pound falls to 23-year trough against dollar at $1.3502

* UK in recession as economy contracts 1.5 pct (Recasts, updates prices)

By Nick Olivari

NEW YORK, Jan 23 (Reuters) - The dollar climbed to a 23-year high against sterling and six-week high against the euro on Friday as weak UK and euro zone data and worries about the global economy kept investors risk averse.

The pound and euro fell to session lows after data showed the UK economy contracted by 1.5 percent in the fourth quarter, far more than analysts had expected and confirming a recession [ID:nONS004024].

Investors took little encouragement from surveys showing the euro-zone manufacturing and services sectors contracted at a slightly slower pace in January, since they remain deep in recessionary territory [ID:nLAG003193].

The yen jumped on the back of its perceived safe-haven status, hitting record highs against the pound and nearing seven-year highs against the euro.

"The U.S. dollar and Japanese yen are higher against the major and most emerging currencies as they continue to benefit from the weak financial and economic environment," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, in a research note to clients.

The euro fell 1.2 percent against the dollar to $1.2828, earlier touching a six-week low of $1.2766. The pound tumbled on the day to hit another 23-year low of $1.3502 before recovering to $1.3699, down 1.1 percent on the day.

Sterling has come under severe pressure recently as worries about a very weak economy have combined with concerns about the UK's troubled banking sector and the parlous state of government finances.

The dollar was also supported by comments from U.S. Treasury Secretary nominee Timothy Geithner, who said a strong dollar is in the interest of the United States.

His remarks came on Thursday when he won the Senate Finance Committee's backing to head the U.S. Treasury. [ID:nN22539780]

The yen was mostly higher with the euro down 0.6 percent at 114.69 yen, still near a seven-year low just above 112 yen. The pound also hit a record low against the yen of 118.87 , according to Reuters data.

The dollar was last up 0.6 percent against the yen at 89.30 yen in a volatile session in which the greenback swung between gains and losses.

"We have these moves overnight (in dollar/yen) and then Europe uses us to square up," said John McCarthy, director of foreign exchange trading at ING Capital Markets. "When the dust settles the Dow is down".

Lower U.S. stocks, exemplified by the Dow Jones industrial average, typically indicate risk aversion and make the yen slightly more preferable to the dollar. The Dow industrials .DJI were down 0.9 percent on Friday.

Traders said the yen remained well-bid as a relatively safe currency due to worries about the deepening global recession.

This weighed on riskier and higher-yielding currencies, with the Australian dollar touching its lowest against the U.S. dollar since early December at $0.6420.

Market players were on the lookout for any comments from Japanese authorities about possible currency intervention to stem the yen's rise.

Worries also are growing about the possibility that the Swiss National Bank could intervene to weaken the Swiss currency, which, like the yen, has gained as investors seek safer assets.

Dollar/Swiss franc was up 1.1 percent at 1.1670 francs. (Additional reporting by Jessica Mortimer in London; Editing by Tom Hals)