FOREX-China reforms help growth currencies; dollar, yen fall


* Funding currencies drop as global stocks push higher

* Australian and New Zealand dollars outperform on Chinareforms

* Easy money, low rates pledge buoy risk sentiment

By Laurence Fletcher

LONDON, Nov 18 (Reuters) - Higher-yielding currencies suchas the Australian and New Zealand dollars rose against the U.S.dollar and yen on Monday, boosted by buoyant stock markets asinvestors cheered China's economic reform plans.

Chinese shares posted their biggest gain in morethan two months on Monday, as Beijing announced its mostsweeping economic and social reforms in nearly three decades.Global shares hit their highest levels since the start of 2008.

"Currencies linked to China will receive some support ...although this is not an outright risk-on environment," said IanStannard, head of European currency strategy at Morgan Stanley,although he said a rebalancing of the Chinese economy could be anegative for the Australian dollar in the longer term.

The Australian dollar was up 0.4 percent versus theU.S. dollar at $0.9402, while the New Zealand dollar was similarly up at $0.8373. Both also rose against the yen .

Both currencies, which also rose on Friday, tend to performwell when investors are prepared to take on more risk or onbetter prospects for Chinese growth.

In contrast, the dollar, yen and euro - which offerinvestors lower yields - were more concerned with the debateover how long central banks will keep monetary stimulus easy.

"Funding currencies, such as dollar, yen and the Swiss francare soft as investors look for value and yield," said TomLevinson, currency strategist at ING.

The dollar came off highs last week as the Federal Reserve'schief-in-waiting encouraged faith it would keep it$85-billion-a-month bond purchases intact this year. Mostinvestors now expect the Fed to start paring stimulus only inMarch 2014, meaning there will be more dollars flushing around.

The European Central Bank has also pledged to keep ratesnear record lows and may yet take more action while the Bank ofJapan is also set to be aggressive in providing monetarystimulus to reach its inflation goal. The BOJ will hold aregular policy meeting this week and is expected to maintain itsultra-loose policy.

The dollar index was down 0.2 percent at 80.709 assome investors trimmed long dollar positions. The dollar wasdown 0.1 percent at 100.08 yen, while the euro wasmarginally up at 135.26 yen. The euro was up 0.1percent against the dollar at $1.3515.

The euro received some support after data showed the eurozone's trade surplus grew more than expected in September.

Morgan Stanley's Stannard also pointed to reform plans forJapanese pension funds, which could weaken the yen.

"The suggestions ... are that we could see somediversification out of JGBs (government bonds) and intohigher-risk assets, and allocations overseas, which should putpressure on the yen," he said.

Investors are keeping a close eye on coming U.S. data togauge the timing of any tapering of the Fed's bond-buying.

A key piece on data, due on Wednesday, is October retailsales. Data on Friday showed currency speculators added to morefavourable bets in the dollar and turned even more negative onthe yen in the week ended Nov. 12.

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