FOREX-Yuan hits 3-week low, yen rises as China grapples with virus outbreak

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Currencies react early to worries about China virus
* Risk aversion supports safe-haven yen
* Investors trying to measure economic impact as virus
spreads

By Stanley White
TOKYO, Jan 27 (Reuters) - The yuan fell in offshore trade on
Monday to its lowest level in three weeks as the death toll in
China from the spread of a new coronavirus mounted, raising
worries authorities are struggling to contain the outbreak and
sparking a bout of risk aversion.
Japan's currency, often sought as a safe-haven in times of
uncertainty, initially jumped versus the dollar to the highest
since Jan. 8 before erasing some of those gains as investors
gauged public health officials' response to the virus.
China's cabinet announced it will extend the Lunar New Year
holidays to Feb. 2 to strengthen the prevention and control of
the new coronavirus, state broadcaster CCTV reported early on
Monday. The holidays had been due to end on Jan. 30.
Hong Kong has also banned the entry of visitors from China's
Hubei province, where coronavirus outbreak was first reported in
the city of Wuhan, underscoring the difficulty officials face
during a peak travel season. Health authorities around the world are racing to prevent a
pandemic of the virus, which has infected more than 2,000 people
in China and killed 80.
There are concerns that tourism and consumer spending could
take a hit if the virus spreads further, which would discourage
investors from taking on excessive risk.
"There is a lot of uncertainty about how much further the
virus will spread, and this is behind the moves in currencies,"
said Yukio Ishizuki, foreign exchange strategist at Daiwa
Securities in Tokyo.
"I thought dollar/yen would be supported at 109, but it
broke through that, so now the next target is 108.50. This
risk-off mood is likely to continue for a while."
In the offshore market, the yuan CNH=D3 was under
persistent pressure and slumped to 6.9776 per dollar, the
weakest since Jan. 6.
The yen JPY=EBS rose to 108.73 per dollar, its strongest
level since Jan. 8, before paring gains to trade up 0.16% at
109.09.
Japan's currency also jumped more than 0.5% versus the
Australian AUDJPY= and New Zealand dollars NZDJPY= as
worries about the virus drew traders toward safe-haven
currencies.
The dollar index .DXY against a basket of six major
currencies was little changed at 97.881.
Traders said market moves could be exaggerated due to low
liquidity, because financial markets in China, Hong Kong,
Singapore, and Australia are closed for holidays.
The virus, which emerged late last year from illegally
traded wildlife at an animal market in the central Chinese city
of Wuhan, has spread to other countries, including Singapore,
South Korea, Canada, Japan, and the United States.
China's National Health Commision confirmed 80 deaths from
the coronavirus and 2,744 cases as of end of Sunday.
Big businesses across China are temporarily shutting stores
or advising staff to work from home. Companies are also offering
longer holidays, cancelling events, and imposing quarantine.
Singapore's government said on Monday the virus will hurt
its already wobbly economy, and is considering tax breaks for
the tourism sector and other firms. The outbreak has evoked memories of Severe Acute Respiratory
Syndrome (SARS) in 2002-2003, another coronavirus which broke
out in China and killed nearly 800 people in a global pandemic.
Sterling, the euro, and the dollar were subdued as traders
awaited the release of economic data and two central bank
meetings.
The pound GBP=D3 was little changed at $1.3060 on the
dollar, and 84.46 pence per euro EURGBP=D3 .
The Bank of England is closer to cutting interest rates this
week than at any time in the last three years when it announces
its policy decision on Jan. 30.
Growth at end of 2019 slowed to its weakest since 2012,
prompting BOE Governor Mark Carney and two other policymakers to
speak publicly about the possibility of a rate cut.
However, monetary easing is far from certain because other
data have shown a pick up in business and consumer sentiment.
The dollar was quoted at $1.1028 per euro EUR=EBS , little
changed on the day but close to its strongest since December.
The U.S. Federal Reserve is expected to keep policy on hold
at a meeting ending Jan. 29. Data on the U.S. housing market,
durable goods, and consumer confidence will be released before
the Fed's decision.