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FOREX-Dollar advances as U.S. trade gap shrinks; Canada dollar slides

* Fed's Rosengren says stimulus should only be removed

gradually

* Swiss franc falls sharply as reserves data weighs

* Euro resists more falls, helped by inflation data

* Focus this week on Fed minutes, U.S. jobs data

By Curtis Skinner

NEW YORK (Frankfurt: HX6.F - news) , Jan 7 (Reuters) - The dollar rose to a one-month

high on Tuesday, buoyed by U.S. trade deficit data that is

expected to boost estimates for fourth-quarter growth in the

world's largest economy.

The U.S. trade deficit in November narrowed to its lowest

level in four years, as exports hit a record high and weaker oil

prices restrained import growth, the latest evidence of

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strengthening economic fundamentals.

The measure is included in the calculation of gross domestic

product, so the narrowing of the deficit could prompt economists

to bump up their U.S. growth estimates for the last quarter of

2013.

"Today's trade figures helped investors look past (Monday's)

disappointing services data and bolsters hopes for a faster

recovery this year," said Joe Manimbo, senior market analyst at

Western Union Business Solutions in Washington.

However, Boston Federal Reserve Bank President Eric

Rosengren, one of the Fed's more dovish policymakers, on Tuesday

said the economy remains vulnerable the longer inflation remains

too low and he again warned that policy stimulus should be

removed "only gradually."

In afternoon trading, the dollar was 0.28 percent higher at

104.53 yen, but remained below a five-year peak of 105.44 yen

set last week. The dollar touched as low as 104.18 yen on

Monday, its lowest since Dec. 23.

The dollar index, which tracks the greenback against

a basket of six major currencies, was last up 0.23 percent at

80.840. It hit a high of 80.946, its strongest level since Dec.

3.

LOONIE PLUNGES

The Canadian dollar, meanwhile, fell broadly on Tuesday

after a round of soft economic data. Activity by Canadian

purchasing managers nosedived unexpectedly in December, while

the country posted a big trade deficit a month earlier.

The Canadian currency's losses pushed the greenback

to its highest level since May 2010. The U.S. dollar was last up

1 percent at C$1.0764.

"From a fundamental perspective, this morning's data release

of a significantly worse-than-expected November trade deficit

has weighed further on the Canadian dollar and is likely to

impart a negative tone to investor sentiment" said Samarjit

Shankar, director of market strategy, at BNY Mellon in Boston.

"Moreover, it is clear that asset markets activity of

real-money investors in recent weeks has contributed to loonie

weakness," he added.

SWISSIE EYED

The euro rose 0.45 percent to 1.2374 francs, its

highest since October and above the 1.20-per-euro cap which the

SNB (Swiss: SNBN.SW - news) has held in place for more than two years. Against the

dollar, the franc also lost ground with the greenback up

0.52 percent to $0.9085 francs.

Data on Tuesday showed Swiss National Bank foreign currency

reserves fell by almost 700 million francs in December,

suggesting pressure on its cap on the franc - which previously

forced it to buy billions of euros - had eased.

"We expect more Swiss franc downside from here given that

the Swiss franc remains excessively overvalued," said Valentin

Marinov, G10 strategist at CitiFX, a division of Citigroup (NYSE: C - news) in

London.

Looking ahead, currency trading will likely be swayed by

Friday's U.S. jobs report, which may give clues as to how

quickly the Fed will taper its bond buying. In addition, market

participants will focus on minutes from the Fed's last monetary

policy meeting, scheduled for release on Wednesday.

Meanwhile, the euro was helped by a euro zone inflation

number which was not expected to be low enough to force the

European Central Bank into more action immediately to loosen

monetary policy. The ECB meets on Thursday.

German retail sales and unemployment data were also better

than expected, while Ireland (Other OTC: IRLD - news) 's successful bond issue offered

more optimism on countries in the bloc under sovereign bailout

programs.

The euro rose as high as $1.3656, but last traded

down 0.08 percent at $1.3615, remaining above Monday's one-month

low of $1.3570, according to Reuters data.