**Economy News


FOREX-Euro near 2-week low after Draghi cautions on its rise
* Draghi says will monitor impact of euro strength * Yen on course to log seven straight weeks of fall * Pound recovers after incoming BoE chief drops no easing hint * Aussie rebounds on China data after hitting 3-month low TOKYO, Feb 8 (Reuters) - The euro hovered near a twoweek low on Friday after the European Central Bank chief voiced concern about the impact of the currency's recent strength on the economy in remarks that analysts said went further than they had expected. Mario Draghi said on Thursday that the exchange rate is important for growth and price stability and that he wants to see "whether the appreciation is sustained and will alter our risk assessment as far as price stability is concerned." Analysts said.

The euro traded at $1.3405, close to its late U.S. levels after having fallen 0.9 percent on Thursday. At one point it fell as low as $1.33705, the lowest since Jan. 25. Draghi said economic activity in the euro area should recover gradually in 2013 but added there are more negative risks than positive. "I got the impression that he went into greater depth than expected...given that last month he just read out a G20 statement, when he was talking about currencies," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ. The euro also slipped to a twoweek low against the British pound, which broadly strengthened after incoming Bank of England governor Mark Carney gave no hints that he favoured immediate easing monetary policy. The pound also rose against the dollar to $1.5718, off a six-month low of $1.5630 hit earlier in the week.

The single currency also slipped against the yen from a 33-month high of 127.71 yen set on Wednesday to trade at 125.40 yen. Still, despite the latest setback, the euro could be supported by the perception that the ECB's policy easing bias is much weaker than that at the U.S. Federal Reserve and the Bank of Japan, said Makoto Noji, senior strategist at SMBC Nikko Securities. "When U.S. and Japanese central banks are expanding their balance sheet, the ECB is shrinking its balance sheet. The euro is likely to be firm unless we have a major surprise in Italian election," he said. Polls have showed Italy's centre-left bloc is in the lead to win the Feb. 24-25 election. But its narrowing lead over the centre-right led by former prime minister Silvio Berlusconi has unnerved investors on concerns that his policies, such as tax-cut proposals, could undo the country's efforts to win back investor confidence.

The yen edged up slightly from late U.S. levels on profittaking but is still on course to log seven straight weeks of losses against the dollar, which would be the longest spell since 1989. The dollar dipped 0.2 percent to 93.48 yen, as traders took profits after its failure to convincingly break above a major resistance at 93.96, a 38.2 percent retracement of its 2007-2011 decline. But it's still up 0.8 percent on the week. The dollar hit a 33-month high of 94.075 earlier in the week as investors sold the yen on expectations that Japan will pursue aggressive monetary easing to shore up the economy. The country's deteriorating balance of payment also weighed on the yen. Data showed Japan posted a current account deficit for two months in a row in December, the first time the balance turned red for two straight months in data dating back to 1985.

The Australian dollar dropped to 3-month low of $1.0256 after the Reserve Bank of Australia trimmed its growth and inflation forecasts, but the currency bounced back after strong Chinese exports data. It last stood at $1.0295, up 0.15 percent from late U.S. levels as data showed China's exports grew 25 percent in January from a year earlier, above expectations of 17 percent growth, adding to evidence of an economic rebound.

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