FOREX-Dollar softens after respite from Turkish rate hike

* Dollar falls as traders' focus turns to Fed tapering

* Fed seen reducing $10 bln in monthly bond purchases

* Turkish, South African rate hikes offer brief respite

(Updates market action, adds quote, changes dateline)

By Richard Leong

NEW YORK, Jan 29 (Reuters) - The dollar weakened against the yen and Swiss franc on Wednesday as traders reckoned emergency action taken to stall the fall of the Turkish currency would not be enough to calm jitters over global emerging markets ahead of an expected U.S. Federal Reserve move to pare stimulus.

The greenback initially rose against the yen and Swiss francs - traditional safehaven currencies - after a surprisingly aggressive interest rate hike by the Turkish central bank in a bid to shore up its currency, which had shed over 3 percent since Friday.

But the dollar's gains faded as doubts surfaced whether these emergency efforts could offset the political and economic problems that could bog down faster-growing economies. That view muted any positive impact when South Africa later unexpectedly raised its interest rates. News Search ID:nL2N0L30VQ

The South African Reserve Bank became the third key emerging market central bank this week to tighten its policy rate, raising its key rate by half a percentage point to 5.5 percent.

Earlier, the Turkish central bank raised all its interest rates in dramatic fashion with its overnight lending rate jumping to 12 percent from 7.75 percent. News Search ID:nL2N0L30VQ

"There are a lot of political and financial fires regionally," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "Emerging market central banks have to be aggressive, but by being so aggressive, that could eventually impact local economic growth, bond yields and stock markets."

Renewed worries about the troubles in emerging markets possibly rippling across the globe spurred fresh selling in Turkish lira, South African rand and revived safehaven bids for the Japanese yen and Swiss franc, analysts said.

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In this flight for safety, the dollar slumped against those safehaven currencies but improved against the emerging market currencies.

The dollar's decline against major currencies was mitigated by an expected decision from the Federal Reserve at about 2 p.m. (1900 GMT) to further shrink its monthly bond purchase program.

In December, U.S. central bank policy-makers surprised some investors by paring its third round of quantitative easing by $10 billion in January to $75 billion.

Analysts forecast the Federal Open Market Committee, the central bank's policy-setting group will taper by another $10 billion in February to $65 billion despite the recent market turmoil.

"A lot of people think the Fed won't be swayed by this," Popplewell said.

After recovering another half a percent against the yen overnight, the dollar turned 0.7 percent lower at 102.26 yen

JPY= , holding above the seven-week low set on Monday.

The dollar edged down 0.2 percent against the Swiss franc at 0.8955 franc CHF= .

The dollar index .DXY was little changed at 80.577, pausing after two days of gains.

"The safehaven strategy is very much in vogue this morning," Popplewell said.

Investors favoring less risky assets also piled money into U.S. government debt, sending benchmark yields US10YT=RR down to 2.717 percent and exerting downward pressure on the dollar, analysts said. Href="NewsSearch">US/

The greenback on the other hand managed a 0.2 percent gain against the euro EUR= at $1.3644.

Against emerging market currencies, the dollar rebounded against the Turkish lira TRY= at 2.256 lira to the dollar after it traded as low as 2.166 lira initially on Turkey's rate hike decision.

The dollar continued to strengthen against the South African rand as it climbed 2 percent to 11.17 rand per dollar. The dollar rose to a five-year high against the rand last week.

(Additional reporting by Patrick Graham in London, Editing by Rosalind Russell)

((richard.leong@thomsonreuters.com)(+1 646 303 6313)(Reuters Messaging: richard.leong.thomsonreuters.com@thomsonreuters.net)(Twitter @RichardLeong2))

 
((     
    Currency bid prices at 11:14AM (1614 GMT) 
Description    RIC    Last    U.S. Close 
 Previous  
 Session    Pct Change    YTD Pct 
 Change    High Bid    Low Bid 
Euro/Dollar    EUR=    $1.3652    $1.3668    -0.12%    -0.68%    +1.3684    +1.3604 
Dollar/Yen    JPY=    102.3400    102.9500    -0.59%    -2.67%    +103.4400    +102.0000 
Euro/Yen    EURJPY=    139.70    140.70    -0.71%    -3.73%    +141.2500    +139.2500 
Dollar/Swiss    CHF=    0.8956    0.8971    -0.17%    +0.31%    +0.9009    +0.8937 
Sterling/Dollar    GBP=    1.6553    1.6577    -0.14%    -0.02%    +1.6606    +1.6527 
Dollar/Canadian    CAD=    1.1151    1.1147    +0.04%    +5.00%    +1.1186    +1.1103 
Australian/Dollar    AUD=    0.8758    0.8776    -0.21%    -1.74%    +0.8825    +0.8728 
Euro/Swiss    EURCHF=    1.2229    1.2265    -0.29%    -0.34%    +1.2297    +1.2216 
Euro/Sterling    EURGBP=     0.8246    0.8244    +0.02%    -0.61%    +0.8259    +0.8220 
NZ Dollar/Dolar    NZD=    0.8268    0.8254    +0.17%    +0.76%    +0.8297    +0.8251 
Dollar/Norway    NOK=    6.1670    6.1223    +0.73%    +1.66%    +6.2162    +6.1189 
Euro/Norway    EURNOK=    8.4210    8.3731    +0.57%    +0.99%    +8.4614    +8.3601 
Dollar/Sweden    SEK=    6.4581    6.4168    +0.50%    +0.56%    +6.4833    +6.4086 
Euro/Sweden    EURSEK=    8.8165    8.7727    +0.50%    -0.56%    +8.8282    +8.7576 
     
     
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Forex Diary.......MI/DIARY   Top events........M/DIARY 
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Keywords: MARKETS FOREX/