* Euro falls as Deutsche Bank sours sentiment
* Deutsche Bank down 7.5 percent in European trade
* Yen on track to post 3 straight quarters of gains
By Anirban Nag
LONDON, Sept 30 (Reuters) - The euro dropped to a two-month low against the safe-haven Swiss franc and lost ground broadly on Friday, as concerns about the health of Deutsche Bank weighed on the single currency and undermined risk appetite across global markets.
The Swiss franc was also bolstered by expectations that Middle Eastern investment houses could pull out money from the United States and into alternative safe-haven liquid currencies like the franc.
Those expectations were raised after the U.S. Congress voted overwhelmingly on Wednesday to approve legislation that will allow the families of those killed in the Sept. 11, 2001 attacks on the United States to seek damages from the Saudi government.
“Risk appetite seems to be backtracking as European banking concerns mount,” said Hans Redeker, head of currency strategy at Morgan Stanley, adding that Swiss franc strength was not just a reflection of the European banking problems.
“It could also be seen in the context of Middle Eastern accounts possibly starting to pull out of the U.S.,” he said.
The Swiss franc hit an eight-week high against the euro at 1.08125 franc in the London session. The euro fell 0.4 percent to $1.11775, while it lost 0.6 percent against the yen to trade at 112.77 yen.
The yen, also seen as a safe-haven currency, has rebounded from Thursday’s trough versus the dollar as global share prices slipped on worries about Deutsche Bank, under pressure from a massive fine imposed by the United States over its sales of mortgage-backed securities.
The latest lurch came after Bloomberg reported that a number of hedge funds that clear derivatives trades with Deutsche had withdrawn some excess cash held at the lender, which has dropped to fourth in overall rankings as a currency trader.
The Japanese yen looked set for its third straight quarter of gains. It has gained about 2 percent so far this quarter, on course to log its third consecutive quarter of gains, as investors suspect the Bank of Japan has reached a practical limit in stimulus and has lost clout in cheapening the yen.
Earlier, the dollar rose from around 101.15 yen to 101.80 yen in just a few minutes, a move traders said appeared to be linked to month-end or quarter-end flows.
The dollar later pared some of its gains and was last trading at 100.80 yen, down 0.2 percent on the day.
Focus will be on U.S. data and a better-than-expected personal consumption expenditure (PCE) deflator -- the Federal Reserve’s favourite inflation gauge -- could offer support to the dollar.
“The Fed seems more focused on employment than on inflation,” said Marshall Gittler, head of investment research at FXPrimus.
“Nonetheless it could help to persuade the holdouts on the Fed that a rate hike in December -- currently seen as only a 58 percent probability -- is justified and therefore be dollar-positive.” (Additional reporting by Masayuki Kitano; Editing by Catherine Evans)