FOREX-Dollar sinks after strong euro zone data, Swiss bank rule

* Dollar falls vs Swiss franc after new bank regulations

* Euro helped by short squeeze, German and French surveys

* Canadian dollar falls to new 4-1/2-year low, Aussie slumps

By Gertrude Chavez-Dreyfuss

NEW YORK (Frankfurt: HX6.F - news) , Jan 23 (Reuters) - The dollar tumbled on Thursday, pressured by strong manufacturing data in the euro zone and new regulations in Switzerland that raised the level of capital banks must hold against their mortgage books, tightening Swiss monetary conditions.

The greenback fell to a one-week low against the euro and Swiss franc. It also fell sharply against the yen, following a weak Chinese manufacturing number. Soft factory data from China sent Asian stocks lower, losses that persisted in Europe and Wall Street and boosted demand for the safe-haven yen.

"With the market of the view that the European Central Bank is going to be conservative when it comes to monetary policy easing, strong manufacturing data just pushes further back the possibility of any unconventional policy, which tends to lift the euro," said Shahab Jalinoos, currency strategist at UBS (Xetra: UB0BL6 - news) in Stamford, Connecticut.

Germany's private sector grew at its fastest pace in more than 2-1/2 years in January, while French business activity shrank less than forecast.

The move by the Swiss government, meanwhile, bolstered the Swiss franc because it raised expectations for currency repatriations to the banking system, Jalinoos said.

In mid-morning trading, the dollar dropped 1.2 percent against the Swiss franc to 0.9001 franc. It fell to 0.8996 franc, a one week-trough. The euro, on the other hand, was 0.3 percent lower at 1.2309 francs.

The Swiss government cited "a considerable risk for the stable development of the economy" driven by strong growth in mortgage loans and residential property prices.

"This clearly shows the SNB (Swiss: SNBN.SW - news) (Swiss National Bank) is on a path where it can get more restrictive," said Ulrich Leuchtmann, head of currency research at Commerzbank (Xetra: CBK100 - news) in Frankfurt.

"It limits the upside potential for euro-Swiss franc," he added. "I don't think they'll abandon the 1.20 (per euro cap on the franc's value) but there will be enough speculation in the market about how long it can continue."

The euro rose 0.9 percent against the dollar to $1.3674 . It climbed as high $1.3677, its strongest level since Jan. 15.

Against the yen, the dollar fell 0.9 percent at 103.57 . The yen drew safe-haven bids after China's flash Markit/HSBC PMI index fell to 49.6 in January from December's 50.5, suggesting a mild slowdown at the end of 2013 has continued into the new year.

The dollar extended losses against the yen after U.S. jobless claims data showed number of Americans filing new claims rose marginally last week.

Against commodity currencies, the U.S. dollar fared better.

Comments from the Bank of Canada, which said currency depreciation should help exports, knocked the Canadian dollar to a fresh 4-1/2-year low. The U.S. dollar was last 0.5 percent higher at C$1.1134.

The Australian dollar, meanwhile, tumbled back toward a 3-1/2-year low after the weak Chinese data. It was last at US$0.8773, down 0.9 percent.

One trader played down the importance of the Chinese survey, however, saying the fall offered an opportunity to buy back the Aussie.

The falls will be welcome for hedge funds, who are betting that both the Australian and Canadian dollars will weaken against a strengthening U.S. dollar as the Federal Reserve scales back its bond-buying.