SYDNEY, Feb 8 (Reuters) - The Aussie was subdued against the

dollar on Monday amid worries about the health of the global

economy and sovereign risk contagion in the euro zone.

* Aussie hovering at $0.8680 having eased from an early

$0.8724 high, but above a four-month low of $0.8576 hit on Friday

when risk appetite for high yielding currencies vanished amid

sovereign debt problems in ,Europe.

* Technically the currency was oversold after shedding seven

cents in three weeks and a corrective bounce is due, perhaps to

targets around $0.8780 and $0.8886. But the overall trend remains

bearish for a test of $0.8542.

* Aussie also bounced somewhat to 77.50 yen, having

slumped to seven-month lows around 76.20 at one point on Friday

as the yen gained from safe-haven flows.

* Global focus remains on EU sovereign debt, with the G7

meeting ending with much vocal support for Greece but no concrete

action. Markets will be watching spreads on

Greece, Portugal and Spanish debt this week.

* Little reaction as yet to news the Australian government

would drop its guarantee for commercial bank wholesale funding.

The banks have been raising money without the guarantee recently,

so the impact should not be dramatic

* Three-year bond futures were flat at 95.260 and

ten-year futures were 0.045 point down at 94.500.

* Longer-term Aussie sentiment could be helped by news that

an Australian miner had signed a deal to sell $60 billion of coal

to China over a 20-year period.

* Chinese and Indian demand for Australian resources should

boost the country's terms of trade this year and is one reason

many local analysts remain bullish on the Aussie for the

longer-term.

* Base metals bounced after heavy losses last

week and oil gained 69 cents.

* The domestic focus this week will be on jobs data on

Thursday where a solid rise of 15,000 is expected in employment

with the jobless rate edging up slightly to 5.6 percent.

* A strong report would revive the prospect of a rate rise in

March, after the Reserve Bank of Australia (RBA) surprised by

skipping a hike last week.

* Top miners Rio Tinto and BHP Billiton

also release financial results this week.

________________________________________________________________

FOREIGN EXCHANGE (against previous Sydney close) 0.8675/78 (0.8670/71)1.2590/2613(1.2571/97) 77.56/60 (77.71/76) 89.39/40 (89.65/66) 0.6354/57 (0.6322/27) 1.3655/58 (1.3707/11)

DEBT FUTURES CASH YIELDS

90-DAY BILL (MAR) 95.83 (-0.02) 3.81 (3.81)

3-YR BOND (MAR) 95.26 (0.00) 4.71 (4.72)

10-YR BOND (MAR) 94.505(-0.04) 5.49 (5.46)

3/10 SPREAD +76.5 (+71) AUST/US 10-YR SPREAD +191 (+184)

S&P/ASX 200 4548.2 (4514.1) US10-YR 3.59 (3.62)

_______________________________________________________________

(Reporting by Cecile Lefort; Editing by Wayne Cole)

((Cecile.Lefort@ThomsonReuters.com; Reuters Messaging;

cecile.lefort.reuters.com@reuters.net; +61 2 9373 1821))

Keywords: MARKETS AUSTRALIA BONDS/FOREX

(If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com)

COPYRIGHT

Copyright Thomson Reuters 2010. All rights reserved.

The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.