* China Dec exports fall 4.4 pct y/y, biggest drop in 2 years
* Yen rallies
* Euro, sterling gain marginally over the dollar
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh (Recasts; updates rates; adds analyst quote; changes dateline from LONDON to NEW YORK; updates byline)
By Kate Duguid
NEW YORK, Jan 14 (Reuters) - A contraction in Chinese exports engendered fears of a slowdown in the world’s second-largest economy, sparking a risk-off move Monday which hurt the Australian and New Zealand dollars, gauges of global risk appetite.
Market sentiment swung negative after data showed that China’s exports unexpectedly fell in December, pointing to a further weakening of its economy and a gloomy growth picture.
The data took its toll on the Australian dollar, which was down 0.24 percent, and kiwi dollar, which was down 0.12 percent. China is Australia’s largest trade partner and negative sentiment about its economy bodes ill for the Aussie dollar.
“The biggest theme (in the market today) is ‘risk-off.’ The soft Chinese data sparked the sell-off and benefited the Japanese yen and at the cost of the Australian dollar,” said John Doyle, vice president of dealing and trading at Tempus, Inc.
The Japanese yen, a safe-haven currency that benefits in times of geopolitical turmoil, strengthened against the U.S. dollar by 0.33 percent.
Fears of a Chinese slowdown also hit the offshore yuan . The currency had rallied 1.5 percent against the dollar last week, its biggest weekly rise since January 2017. The rally reflected optimism in the progress of U.S.-China trade talks, though somewhat incongruent with recent sluggishness in China’s economy.
Against the euro, the greenback was about 0.02 percent lower, and the dollar index was at 95.60, down about 0.08 percent.
“With the Federal Reserve signaling a pause in the tightening cycle... we don’t expect today’s China trade numbers to have a long-lasting negative impact on sentiment,” said Chris Turner, head of foreign exchange strategy at ING in London.
After a stellar 2018 in which the greenback gained 4.3 percent as the U.S. central bank hiked rates four times, investors now expect the Fed to pause or even halt its monetary tightening policy.
Chairman Jerome Powell reiterated last week that the Fed has the ability to be patient on monetary policy given that inflation remains stable.
Earlier Monday, the British pound rose 0.3 percent to a 7-week high of $1.29 at the start of what is expected to be a highly volatile week. It was last up 0.12 percent.
Prime Minister Theresa May warned on Monday that failure to approve her Brexit deal could lead to Britain eventually staying in the European Union. May must win a vote in parliament on Tuesday to get her Brexit deal approved or risk a chaotic exit for Britain from the European Union. Her chances of winning the vote appear to be slim. (Reporting by Kate Duguid and Tom Finn; Editing by Andrea Ricci)