December 23, 2019 / 3:48 AM / a month ago

FOREX-Dollar buoyed by signs of solid U.S. economy, pound ticks up

* U.S. data points to modest growth, supports dollar

* Pound steadies after 2.6% fall last week

* North Korea tensions could upset calm markets

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

By Hideyuki Sano

TOKYO, Dec 23 (Reuters) - The dollar held firm at the start of a holiday-thinned week on Monday, as U.S. data pointed to solid economic growth while the British pound bounced slightly after having suffered its biggest weekly fall in three years.

A batch of economic data published on Friday showed the U.S. economy, already in its longest expansion in history, appears to have maintained the moderate pace of growth as the year ended, supported by a strong labour market.

Gross domestic product increased at a 2.1% annualised rate, the Commerce Department said in its third estimate of third-quarter GDP. That was unrevised from November's estimate.

"The U.S. economy appears to have stopped slowing. There is no indication it will be hitting a recession," said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.

Earlier this year, investors were spooked by fears over the possibility of a U.S. recession when the U.S. yield curve inverted, which has been historically one of the most reliable signs of a U.S. downturn.

Separate data showed consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month as households stepped up purchases of motor vehicles and spent more on healthcare.

That contrasted with an unexpected deterioration in German consumer sentiment.

The euro stood at $1.10778, little changed on the day but in retreat since it hit a four-month high of $1.12 on Dec. 13.

The dollar index was at 97.659, flat on the day but maintaining its recovery trend since hitting a five-month low of 96.605 on Dec. 12.

The dollar has been supported by optimism over the global economy since Washington and Beijing came to an interim trade agreement earlier this month.

China said on Monday it would lower tariffs on products ranging from frozen pork to some type of semiconductors next year, as Beijing looks to boost imports amid a slowing economy and a trade war with the United States.

U.S. President Donald Trump said on Saturday the United States and China would "very shortly" sign their so-called Phase 1 trade pact.

Against the yen, the dollar changed hands at 109.41 yen , little changed on the day and not far from a six-month high of 109.73 touched earlier this month.

"One thing to look at is whether market players cut their (yen-short) positions ahead of the holiday period on concerns there could be a flash crash like a year ago," said Minori Uchida, chief currency analyst at MUFG Bank.

The dollar tumbled as much as 4.4% on the second trading day of this year as a lack of yen liquidity, due to a Japanese market holiday, amplified the dollar/yen's fall sparked by a rare revenue warning from Apple Inc.

Currency speculators have cut their net short positions in the yen slightly in the week that ended last Tuesday after having increased bets against the currency constantly for a few months, data from the U.S. financial watchdog showed on Friday.

Some noted concerns over increasing tensions between North Korea and the United States.

North Korean leader Kim Jong Un held a meeting of top military officials to discuss boosting the country's military capability, the state news agency reported on Sunday amid heightened concerns the North may be about to return to confrontation with Washington.

Sterling traded at $1.3011, up slightly as it regained some stability after hitting a 2-1/2-week low of $1.2979 on Friday.

It fell 2.6% last week, the biggest weekly fall since October 2016, after UK Prime Minister Boris Johnson set December 2020 as a hard deadline to reach a trade agreement. (Editing by Lincoln Feast and Jacqueline Wong)

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