Swiss franc drops sharply, chatter that SNB intervening

LONDON, Sept 30 (Reuters) - The safe-haven Swiss franc fell sharply on Friday, having earlier hit a two-month high on worries about the European banking sector, with some traders speculating that the Swiss central bank was intervening to cap the currency's strength.

The euro had hit a two-month low of 1.08125 francs earlier in the London session, as concerns about the health of Deutsche Bank (LSE: 0H7D.L - news) weighed on the single currency and undermined risk appetite across global markets.

But by 0958 GMT it had rebounded to hit a one-week high of 1.09135 francs, rising 0.4 percent in a matter of minutes. It was last trading at 1.0874 francs, still up 0.3 percent on the day, while the single currency was broadly weaker against most major currencies.

The Swiss National Bank often intervenes by selling francs and buying the euro in order to cap the currency's strength, data shows.

The dollar climbed 1 percent to a 9-day high of 0.9770 francs, having hit a one-month low on Thursday. The Swiss franc was bolstered by expectations that Middle Eastern investment houses could pull out money of the United States and into alternative safe-haven liquid currencies like the franc.

Those expectations got a boost 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. (Reporting by Anirban Nag; Editing by Jemima Kelly)