* Euro falls as Deutsche Bank sours sentiment
* Deutsche Bank down 7.5 percent in European trade
* Yen on track to post 3 straight quarters of gains
By Anirban Nag
LONDON, Sept 30 The euro dropped to a two-month
low against the safe-haven Swiss franc and lost ground broadly
on Friday, as concerns about the health of Deutsche Bank weighed
on the single currency and undermined risk appetite across
The Swiss franc was also bolstered by expectations that
Middle Eastern investment houses could pull out money from the
United States and into alternative safe-haven liquid currencies
like the franc.
Those expectations were raised after the U.S. Congress voted
overwhelmingly on Wednesday to approve legislation that will
allow the families of those killed in the Sept. 11, 2001 attacks
on the United States to seek damages from the Saudi government.
"Risk appetite seems to be backtracking as European banking
concerns mount," said Hans Redeker, head of currency strategy at
Morgan Stanley, adding that Swiss franc strength was not just a
reflection of the European banking problems.
"It could also be seen in the context of Middle Eastern
accounts possibly starting to pull out of the U.S.," he said.
The Swiss franc hit an eight-week high against the euro at
1.08125 franc in the London session. The euro
fell 0.4 percent to $1.11775, while it lost 0.6 percent
against the yen to trade at 112.77 yen.
The yen, also seen as a safe-haven currency, has rebounded
from Thursday's trough versus the dollar as global share prices
slipped on worries about Deutsche Bank, under
pressure from a massive fine imposed by the United States over
its sales of mortgage-backed securities.
The latest lurch came after Bloomberg reported that a number
of hedge funds that clear derivatives trades with Deutsche had
withdrawn some excess cash held at the lender, which has dropped
to fourth in overall rankings as a currency trader.
The Japanese yen looked set for its third straight quarter
of gains. It has gained about 2 percent so far this quarter, on
course to log its third consecutive quarter of gains, as
investors suspect the Bank of Japan has reached a practical
limit in stimulus and has lost clout in cheapening the yen.
Earlier, the dollar rose from around 101.15 yen to 101.80
yen in just a few minutes, a move traders said appeared to be
linked to month-end or quarter-end flows.
The dollar later pared some of its gains and was last
trading at 100.80 yen, down 0.2 percent on the day.
Focus will be on U.S. data and a better-than-expected
personal consumption expenditure (PCE) deflator -- the Federal
Reserve's favourite inflation gauge -- could offer support to
"The Fed seems more focused on employment than on
inflation," said Marshall Gittler, head of investment research
"Nonetheless it could help to persuade the holdouts on the
Fed that a rate hike in December -- currently seen as only a 58
percent probability -- is justified and therefore be
(Additional reporting by Masayuki Kitano; Editing by Catherine