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FOREX-Dollar perched at 8-week highs as virus fears linger; Fed eyed

By Saikat Chatterjee

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Jan 28 (Reuters) - The dollar held at a 8-week high against its rivals on Tuesday as investors focused on the economic fallout from a new coronavirus in China, though broader market sentiment stabilised with the Chinese yuan and the Australian dollar off early lows.

Global stocks and oil prices have tumbled in recent days on fears the virus could do further damage to China's already weakened economy, an engine of global growth. Currency markets were subdued in early London trading as a two-day U.S. Federal Reserve meeting kicks off later on Tuesday.

"The market is taking a step back from the selloff earlier due to the virus concerns though the dollar is unlikely to weaken substantially as there is safe-haven demand for the greenback," said Morten Lund, a senior FX strategist at Nordea.

Against a basket of its rivals, the dollar rose 0.1% to 98.01, its highest level since early December and taking its gains so far to 1.7%.

The Australian dollar and its New Zealand counterpart led losers against the greenback, falling 0.2% and 0.1% respectively though both those currencies were off early lows.

Investors' attention was firmly focused on the Chinese currency in the offshore market with mainland markets shut for holidays this week. In early London trading, the Chinese currency gained 0.2% to 6.97 yuan per dollar.

Strength in the offshore yuan provided some calm to nervous currency markets even as European stocks were struggling to hold on to opening gains. The Chinese currency has weakened more than 2% in less than a week against the dollar.

Elsewhere, the yen held steady at 108.97 per dollar, close to its strongest level since Jan. 8.

Japan's currency has risen for the past five trading sessions against the greenback due to the growing risk aversion.

The Swiss franc also benefited from the growing risk aversion with the currency rising to a near three-year high against the euro on Monday below 1.07 francs per euro. (Reporting by Saikat Chatterjee; Editing by Angus MacSwan)