FOREX-Dollar buoyed by trade deficit data; Swiss franc falters

* Fed's Rosengren said stimulus should only be removed gradually

* Franc falls sharply as reserve data weighs

* Euro resists more falls, helped by inflation data

* Focus on Fed minutes and Friday U.S. jobs data

By Julie Haviv

NEW YORK (Frankfurt: HX6.F - news) , Jan 7 (Reuters) - The dollar gained against the yen on Tuesday, buoyed by U.S. trade deficit data that could inflate estimates for fourth-quarter growth in the world's largest economy.

The U.S. trade deficit fell to its lowest level in four years in November as exports hit a record high and weak oil prices restrained import growth, the latest evidence of strengthening economic fundamentals.

The measure goes into the calculation of gross domestic product, so the decline could prompt economists to bump up their growth estimates for last quarter.

Stronger growth could prompt the Federal Reserve to speed up the tapering of its monthly bond purchases, but most contend the central bank will gradually wind it down.

Indeed, Eric Rosengren, president of the Federal Reserve Bank of Boston, one of the most dovish U.S. central bankers, 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 early New York trade, the dollar traded 0.3 percent higher at 104.48 yen, but remained below a five-year peak of 105.44 yen set last week. The dollar fell as low as 103.88 yen on Monday, its lowest since Dec. 23.

The dollar index, which tracks the greenback against a basket of six major currencies, was up 0.1 percent at 80.758 .

The Swiss franc, meanwhile, fell to its lowest against the euro since October, with some analysts arguing global economic optimism had laid the ground for a retreat for the one of the world's "safest" currencies.

Data on Tuesday also 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.

"It further underscores the bank's resolve to fight Swiss franc appreciation and could make alternative measures like penalty rates on bank excess reserves or negative policy rates more attractive," said Valentin Marinov, G10 strategist at CitiFX, a division of Citigroup (NYSE: C - news) .

The euro rose 0.4 percent to 1.2364 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. The franc also lost 0.3 percent to $0.9070.

"We expect more Swiss franc downside from here given that the Swiss franc remains excessively overvalued," CitiFX's Marinov said. "The firm prefers to express any bearish view against the dollar rather than the euro."

UBS (Xetra: UB0BL6 - news) pointed to signs that Swiss funds and banks are beginning to invest and loan money abroad again - something they have not done since 2008 and one important precondition for the franc falling back.

"People tended to play the weaker franc last year and a lot of them got frustrated. Now there may be a new attempt," said Beat Siegenthaler, currency strategist with UBS.

"The question has always been what would be a trigger (for a turnaround in the franc). It could have been the easing of the euro crisis and that didn't happen. So maybe it is the change in the U.S., the feeling of broader optimism and change in the dollar that may come from economic improvement there."

UBS has a near-term target of 1.25 francs to the euro, Siegenthaler said.

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 better than expected as well, while Ireland (Other OTC: IRLD - news) 's successful bond issue offered more optimism on the bloc's debt strugglers.

The single currency rose as high as $1.3656, but last traded flat at $1.3630, above from Monday's one-month low of $1.3570.

Looking ahead, currency trading will likely be swayed by Friday's U.S. jobs report, which may give a clue as to how quickly the Fed will taper its bond buying. Overall the outlook on interest rates is against the euro.

Ahead of the jobs data, market participants will focus on minutes from the Fed's last monetary policy meeting, scheduled for release on Wednesday.