FOREX-Dollar slips to 9-week low on safe-haven yen as Mideast tensions flare

* Yen firms after U.S. air strike kills Iranian commander
* Treasury futures blip higher, oil prices jump
* Eyes on U.S. factory survey after poor UK, EU results

By Wayne Cole
SYDNEY, Jan 3 (Reuters) - The Japanese yen led other
safe-haven assets higher on Friday after U.S. air strikes on
Baghdad airport killed a senior Iranian military official,
stoking tensions in the Middle East and lifting the price of
oil.
U.S. Treasury bonds and gold rallied after an Iraqi militia
spokesman told Reuters that Iranian Major-General Qassem
Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis were
killed in the attack. The Pentagon confirmed the attack, saying Soleimani was
actively developing plans to attack Americans in Iraq and the
Middle East. "We are only into the third day of the new year, and a big
fat dollop of geopolitical uncertainty has landed on investors'
desks," said Jeffrey Halley, senior market analyst for Asia
Pacific at broker OANDA.
"I am struggling to see how an Iranian riposte will not
occur," he added. "Oil installations and tankers were my first
thoughts."
The market seemed to agree with oil jumping around $2 a
barrel. O/R
The dollar eased 0.4% to 108.14 yen JPY= following the
news, breaching several layers of chart support and reaching its
lowest since early November. The euro dipped to a three-week low
at 120.63 yen EURJPY= .
The yen is often used as a safe harbour during times of
global tensions given Japan's status as the world's largest
creditor nation. A holiday in Tokyo also made for thin
conditions, exaggerating the move.
The holiday meant cash Treasuries were not trading yet, but
Treasury bond futures gained 7 ticks on the news TYc1 implying
a drop in U.S. yields.
Against a basket of currencies, the dollar eased a fraction
to 96.770 .DXY but stayed above recent six-month lows around
96.355.
The dollar had found overnight support after dismal economic
news from Europe and the UK weighed on the pound and euro.
Surveys showed British factory output fell in December at
the fastest rate since 2012, while the German manufacturing
sector stayed deep in contraction. The pound was flat at $1.3135 GBP= , after easing from a
top of $1.3266 on Thursday. The euro stood at $1.1171 EUR= ,
after backing away from major chart resistance around $1.1249.
An index of U.S. manufacturing activity due later is
expected to show a slight uptick to 49.0 in December, from 48.1
the month before.
Figures out Thursday showed jobless claims edged lower last
week in a positive signal for the U.S. labour market.
The resilience of employment is a major reason the Federal
Reserve has signalled no more rate cuts will be needed in this
cycle, leading markets to sharply scale back expectations of
further policy easing FEDWATCH .
Several Fed official are speaking on Friday including
Governor Lael Brainard and the heads of the San Francisco,
Chicago, Richmond and Dallas banks.
Analysts expect they will remain upbeat on the economic
outlook and reiterate a steady outlook for rates.