SYDNEY- The yen and Swiss franc held most of their recent hefty gains in Asia on Wednesday, having outperformed after Moody's cut Ireland's credit rating to junk status, fuelling jitters about the euro zone sovereign debt crisis.
Investors are likely to remain wary ahead of Chinese data including gross domestic product expected around 0200 GMT. Further signs of softness could add to concerns about a hard landing for the world's second biggest economy, which has been tightening policy to fight inflation .
But the U.S. dollar lagged after minutes of the Federal Reserve's last meeting revealed that some policymakers believed further easing could be needed if the recovery remains too sluggish.
The dollar briefly plunged below 79.00 yen for the first time since mid-March. Back then Japanese officials, along with other central banks, had to intervene to curb the yen.
Traders said the drop was triggered by a big sell order and occurred in thin volumes. It accelerated after stop-losses were triggered when 79.00 broke.
"It was a pretty sharp spike down and I think the Bank of Japan will be watching to see what happens next," said Richard Grace, chief currency strategist at Commonwealth Bank.
The dollar has since recovered to 79.42 , off the low around 78.48 hit on EBS. Against the Swiss franc, it came within easy reach of a record low near 0.8270 francs set last month, before regaining some ground to 0.8315 francs.
The euro also suffered wild swings overnight. It skidded to a four-month low around $1.3835 , then bounced back up to $1.4054, before news of the Irish credit rating cut sent it hurtling back down again. It last traded at $1.3983.
Immediate support is seen around $1.3907, the 200-day moving average, then the overnight trough, followed by the March low of $1.3740/50.
Moody's cut Ireland's credit rating to junk status, saying the country will likely need further official financing before it can return to international capital markets.
The move came as European Union leaders looked set to hold an emergency summit on Friday after finance ministers acknowledged for the first time that some form of Greek default may be needed to cut Athens' debts and stop contagion spreading to Italy and Spain.
The European Banking Authority will also publish stress test results for 91 of the region's top lenders on Friday, keeping euro bulls in check.
"The euro is going to remain under downward pressure until we get some clarity," Grace said, adding it could fall to $1.3659 in coming days.
The common currency plumbed a record low versus the Swiss franc, reaching around 1.1545 francs before recovering a bit of ground to last stand at 1.1627.
While not completely spared the overnight drama, commodity currencies saw much milder moves with the Australian dollar dipping to a 2-1/2 week low around $1.0525, before clawing back above $1.0600.
The fact is, the U.S. dollar has problems of its own, not least the political impasse to lift the government's debt ceiling, which could result in a debt default if not resolved.
Dollar bulls are also wary ahead of Fed Chairman Ben Bernanke's semi-annual testimony on the economy and monetary policy before the House Financial Services Committee starting at 1400 GMT.
Following last Friday's dismal jobs report, Bernanke could tread on the cautions side, adding more pressure on the dollar. (Editing by Wayne Cole)