TOKYO, Aug 14 (Reuters) - The dollar gained for a 10th straight day against a basket of currencies on Thursday, with investors cutting holdings of the euro and higher-yielding currencies on a downbeat view of the global economic outlook.

But the dollar slipped against the yen as more Japanese retail traders slashed more of their big positions in the Australian and New Zealand dollars after getting burned by the sharp slide in those currencies over the past few weeks.

The dollar has surged across the board as investors see major central banks cutting interest rates to limit the damage from the global economy’s slowdown, while the Federal Reserve is expected to keep interest rates on hold after having already slashed them.

Market players have been caught off guard by the sudden downturn in global economic expectations, leading to heavy selling of once popular bets buying the euro, Australian dollar and commodities on a view that world growth would hold up.

Data on Wednesday showing that Japan’s economy contracted in the second quarter at the sharpest pace since its last recession in 2001, highlighted the spreading pain from the U.S. housing crisis and global credit crunch.

The Bank of England also offered a bleak assessment of the outlook for growth in its quarterly inflation report on Wednesday as well, opening the door to interest rate cuts and sending sterling tumbling for its biggest one-day drop in eight months.

"Reading the report almost leaves one overwhelmed by impending doom," said currency strategists at RBC Capital Markets in a note to clients.

The dollar dipped 0.1 percent from late U.S. trade to 109.39 yen down from a seven-month peak of 110.40 yen struck earlier this week.

The euro inched down 0.2 percent to $1.4901 after touching a six-month low of $1.4815 this week. Sterling was little changed at $1.8061

The dollar index, which gauges its performance against six major currencies, edged up 0.2 percent to 76.373 — near a six-month high reached this week.

A top Australian central banker said on Thursday it would not wait for inflation to fall before cutting rates, pushing the Aussie down.

The Australian dollar fell 0.4 percent to $0.8710 having bounced back from a seven-month low of $0.8590 hit on Wednesday.

The Aussie shed 0.4 percent to 95.29 yen but was up from a four-month low of 93.09 yen. In the past two weeks, the Aussie has slid 8 percent versus the yen.

The Aussie and kiwi both surged overnight as some speculators rushed to cover short positions built up against the yen during their drop, while some Japanese individual traders were snapping up the high-yielding currencies.

Traders in Tokyo said that while some of the Japanese day traders had panicked the previous day and were forced to sell the Aussie and kiwi to cut losses, others were seeing this as an opportunity to buy.

A trader at a Japanese securities house said the better mix of buying and selling by the traders suggested the Aussie and kiwi may have hit bottom against the yen for now.

The individual traders, who make leveraged bets with borrowed funds of 100 times or more what they put up, had lifted long positions favouring the Aussie and kiwi to a record high in the past few weeks on the Tokyo Financial Exchange. (Reporting by Eric Burroughs; Editing by Edwina Gibbs)

Source: guardian.co.uk

written by Andrew