Yen jumps on suprisingly strong Japan output

TOKYO, Nov 29 (Reuters) The yen jumped against the dollar and the euro on Wednesday on strong Japanese industrial output data that bolstered expectations for the Bank of Japan to bump up interest rates in the next few months.

Taking a cue from the US currency's weakness versus the yen, the euro extended gains to hit a fresh 20-month high and sterling hit another two-year peak against the dollar.

Japan's industrial production rose 1.6 percent in October from a month earlier, exceeding the median forecast in a Reuters poll for a decline of 0.5 percent.

The data suggests that output will stay on a firm footing going into next year, said Mamoru Yamazaki, chief economist for RBS Securities.

''It's the type of content that will strengthen expectations for a slightly early rate rise,'' Yamazaki said, although he added that RBS Securities was sticking to its forecast for the BOJ to raise rates in January.

Most market players have been expecting the BOJ to raise rates by 25 basis points to 0.50 percent by the end of March, with some forecasting a rate rise in December.

By 0105 GMT, the dollar was at 115.80 yen, down from 116.15 yen in late US trading.

Sterling was slightly up on the day at $1.9530 after hitting $1.9545, its highest since December 2004.

The euro was little changed at $1.3200 after marking a 20-month high of $1.3218 The euro hit another record high against the Japanese currency in early Asian trade, rising to around 153.40 yen, before erasing its gains on the Japan output data.

It was at 152.70 yen, down from around 153.30 yen in late U.S. trading.

The euro extended gains against the dollar, which was dragged lower on Tuesday due to weak U.S. economic data that supported expectations that the Federal Reserve may cut rates early next year.

Speaking at a forum in Tokyo, European Central Bank governing council member Christian Noyer said the euro was becoming ''extremely attractive'' as a transaction vehicle and reserve currency.

BOJ Governor Toshihiko Fukui, attending the same event, said Japan's economy was expanding steadily and moderately.

REUTERS SBA BST0715