Euro hits record high vs yen, Trichet awaited

TOKYO, Dec 20 (Reuters) The euro posted a record high versus the yen and climbed against the dollar on Wednesday after an upbeat survey of German business sentiment the previous session stoked expectations for higher euro zone interest rates in early 2007.

Germany's Ifo survey jumped in December to a 15-year high, showing the euro zone's largest economy is on a strong footing going into the new year and raising the prospect of the European Central Bank lifting rates further from 3.5 percent.

Investors will look for any clues on the rate outlook from ECB President Jean-Claude Trichet, who is due to testify before the European Parliament in Brussels at 0830 GMT.

''The dollar remains vulnerable to more news suggesting that the ECB may have more work to do,'' said currency strategists at Morgan Stanley in a note to clients.

The yen suffered across the board, hitting eight-year lows against sterling, as Bank of Japan Governor Toshihiko Fukui tempered expectations for a rate increase in January by sounding a cautious note on consumer spending and prices.

Yen money markets cut the possibility of a rate increase in January to about 50 percent from 70 percent after Fukui's remarks on Tuesday, with a slew of indicators between now and the next meeting seen as decisive in swaying the BOJ.

The yen has suffered as the low-yielding currency has been used to fund purchases of higher-yielding currencies in the carry trade.

Even as the BOJ raised interest rates for the first time in six years back in July to 0.25 percent from zero, the yen's ultra-low yields have kept the currency on the back foot across the board.

The dollar rose to 118.25 yen from around 118.10 yen in late New York trade, closing in on a one-month high of 118.33 yen struck last week.

The euro pushed up to near 156.30 yen, a new high since the single currency was first launched in 1999 and taking this year's rise to nearly 12 percent.

Sterling rose to near 233.20 yen, the strongest since September 1998 and taking gains in 2006 to nearly 15 percent.

The euro rose to $1.3215 from around $1.3195, rebounding from a one-month low of $1.3052 hit earlier this week.

Market players were also keeping an eye on developments in Thailand after the country's benchmark stock index plunged 15 percent on Tuesday, the worst in 16 years, after the central bank imposed stringent controls on foreign currency inflows.

After the move prompted foreign investors to dump Thai stocks and bonds, the Bank of Thailand agreed to exempt equity holdings from the rules imposing penalties if capital invested in the country is taken out after less than a year.

The new regulations also prompted many foreign banks to stop quoting the Thai baht to customers, confining most trading to domestic institutions.

REUTERS PKS RN0643