FOREX-Dlr gains on Korea skirmish, euro zone debt worries

* Scramble to safety benefits dollar

* Markets already on edge because of Ireland

* Geopolitical risk adds to FX worries

(Releads, adds quotes, previous HONG KONG)

By Anirban Nag

LONDON, Nov 23 (BestGrowthStock) – The dollar rose on Tuesday after
North Korea shelled a South Korean island, adding geopolitical
tension to Europe’s debt crisis and driving investors to the
relative safety of the U.S. currency.

The shelling by North Korea triggered return fire by the
South, military and South Korean media reported, exacerbating
the risk aversion gripping global financial markets heading into
year end. [ID:nL3E6MN09Z].

“Tension in the region has led to knee-jerk reaction in
currencies and stocks but they tend not to have an everlasting
impact,” said Paul Robson, currency strategist at RBS Global
Banking.

“Focus will shift back to the euro and we believe euro zone
peripheral issues have some more time to run. Investors will go
after Portugal and then Spain after Ireland is done.”

Trading was choppy in Asia with a holiday in Japan reducing
liquidity. These conditions were seen prevailing this week with
the U.S. Thanksgiving holiday looming.

The dollar index (Read more about the global trade. ) (.DXY: ) was up 0.3 percent at 78.90, but off
its intra-day high of 79.116. The euro was down 0.4 percent on
the day at $1.3561 (EUR=: ), dropping from around $1.3600 when the
Korean clash was reported. Against the safe-haven Swiss franc,
the euro was down 0.4 percent at 1.3431 francs (EURCHF=: ).

The dollar was up 0.4 percent against the yen at 83.65 yen
(JPY=: ), from 83.40 yen before the shelling began. Traders said
macro funds buying the dollar after the shelling began ran into
offers from Japanese exporters. More exporter offers were seen
at 83.80-84.00 yen level.

“Military skirmishes on the Korean peninsula are not helping
investors in local equity markets,” said Chris Turner, chief
currency strategist at ING. “Dollar/yen is trending higher and
some better U.S. activity data and higher U.S. yields could take
dollar/yen above 84.”

CONFIDENCE IN EURO BRITTLE

The skirmishes are likely to heighten anxiety amongst
investors already on edge over the euro zone debt crisis. Many
are not convinced aid to Ireland will prevent other heavily-
indebted members of the 16-country bloc from seeking aid.

Indeed, Canada’s finance minister said on Monday he was
pressing the European Union to address the Portuguese debt
crisis quickly, although he fell short of saying the country
would need a bailout like Ireland. [ID:nN22292493]

Portugal and Spain are seen as the next weakest links.

Irish Prime Minister Brian Cowen defied pressure to quit,
saying on Monday he would stay in office until parliament passed
a budget on Dec. 7, then call an election. [ID:nLDE6AL2AG]

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Ireland requests international bailout [ID:nLDE6AK0G8]

Europe debt problems [ID:nLDE68T0MG]

Euro zone debt struggle: http://r.reuters.com/hyb65p

Multimedia on euro zone crisis: http://r.reuters.com/hus75h

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The euro was already down 5 percent against the greenback
this month, retreating from a nine-month high hit on Nov. 4.

Support for the euro is seen at $1.3446, the Nov. 16 trough,
a break of which could pave the way for a retest of $1.3333, the
August high, which some analysts said would confirm a developing
downtrend for the single currency.

The euro was flat at 113.48 yen (EURJPY=R: ), well below
Monday’s highs of 114.98 yen.

Both the Australian and the New Zealand dollar shed more
than 1 percent as the tensions on the Korean peninsula prompted
investors to unwind some long positions built in those
high-yielding currencies.

The Australian dollar (AUD=D4: ) was down nearly 0.9 percent
at $0.9805 while the kiwi (NZD=D4: ) lost more than 1 percent to
fall to $0.7652, its lowest since Nov. 17.

(Additional reporting by Kevin Plumberg in Hong Kong and Ian
Chua in Sydney)

FOREX-Dlr gains on Korea skirmish, euro zone debt worries