RTRS: Dollar climbs on Middle East fears; NZ quake hits
* Mounting crisis in Libya prompts investors to cut risk
* Profit-taking pressures euro and sterling - trader
* Kiwi tumbles; quake in NZ stirs rate cut talk
* Limited impact after Moody's cuts outlook for Japan sovereign rating (Updates price levels)
By Hideyuki Sano and Masayuki Kitano
TOKYO/SINGAPORE, Feb 22 (Reuters) - The dollar rose broadly and the New Zealand dollar tumbled on Tuesday as mounting tension in the Middle East and a deadly earthquake in New Zealand drove investors to cut risk.
Investors were spooked by the unrest in Libya, where forces loyal to leader Muammar Gaddafi have fought an increasingly bloody battle to keep the veteran leader in power.
The rising tensions have sparked a surge in oil prices, weighed on Asian shares and currencies and triggered profit-taking in currencies that have rallied recently such as the sterling and the euro, market players said.
Robert Ryan, FX strategist at BNP Paribas in Singapore, said the drop in emerging Asian currencies on Tuesday was likely prompted by a knee-jerk move to cut back on risk-taking.
But there could be a more enduring impact on major currencies such as sterling and the euro if the rise in oil prices persists, he said.
"The idea of higher oil prices, particularly in Europe, is not going to be positive. The UK and Europe are going to suffer ... They are already in trouble with inflation with very low growth," Ryan said.
"If they have to raise interest rates not because of economic growth but because of inflation fears that is hardly positive," he said, adding that sterling in particular could be vulnerable.
The dollar climbed 0.5 percent against a basket of major currencies to 78.089 , and now faces resistance right below 78.200, where the conversion line and base line come in on daily Ichimoku charts.
Short-covering likely helped to amplify the dollar's gains, said a trader for a major Japanese bank in Singapore.
"Dollar selling had accelerated last week in line with a drop in U.S. yields... I think the market was probably tilted toward short dollar positions and that some dollar short-covering is taking place now," he said.
Middle East tensions were likely to remain in the spotlight following news that two Iranian ships entered the Suez Canal on Tuesday and were heading toward the Mediterranean, a move certain to anger Israel.
