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* Canada, Aussie dollars to benefit from diversification
* Strong correlation with stocks could wane
* Central bank buying to check swings in these currencies
By Anirban Nag
LONDON, Dec 6 (Reuters) - An IMF plan to list the Australian and Canadian dollars as reserve currencies could curb swings in their exchange rates and enhance their appeal relative to troubled rivals such as the dollar, yen and euro.
Raising the status among central bank reserves of the two growth-linked dollars could weaken their strong correlation with stocks and commodities, which has seen the currencies sell off sharply when worries about global economic health escalate.
In considering adding the Australian and Canadian currencies to a list that includes the U.S. dollar, euro, yen, sterling and Swiss franc, the International Monetary Fund is unlikely to trigger a rush to buy and is largely recognising reality.
Asian, Middle Eastern and European central banks, with trillions of dollars in reserves, have been steadily paring exposure to the dollar and yen in recent months and increasing holdings in the Aussie and Canadian currencies.
The risk of further monetary easing in the United States and Japan have somewhat tarnished the appeal of the dollar and the yen, while a three-year-old sovereign debt crisis has made investors wary of the euro.
"With the U.S. problems and the euro zone crisis, reserve managers are always looking at credible alternatives," said Simon Derrick, head of currency research, at Bank of New York Mellon. "We could see the Aussie and Canadian dollars trade more like safe-haven currencies in the medium term."
The traditional safe havens, to which investors turn in times of financial stress, are the reserve currencies favoured by central banks because of their deep liquidity.
They usually move inversely with stocks and other growth-linked assets and currencies such as the hitherto more volatile Australian and Canadian dollars.
However, these two currencies' correlation with stocks is showing signs of ebbing. While the U.S. S&P stock index has lost more than 2 percent so far this quarter, the Aussie has risen 1 percent while the Canadian dollar has lost less than 1 percent.
In the quarter ending September 2011, when the S&P index lost 14 percent, the Aussie fell 10 percent and the Canadian dollar dropped 8 percent.
Global reserves have grown rapidly in the last decade, to $10.5 trillion in June 2012 from $2.4 trillion at the end of 2002, IMF data showed. During that time, while the dollar's share has slipped to around 62 percent, the share of "other currencies" has risen 10 times to $310 billion.
More than 20 reserve managers have the Aussie in their portfolios, according to the Reserve Bank of Australia, while the Russian and Swiss central banks have been active buyers of the Canadian dollar, traders and money managers said.
So far they have been lumped together in IMF reserves data as "other currencies" and analysts said the plan to list them individually reflected how well the Australian and Canadian economies have performed during the global financial crisis.
"This largely reflects the stability of Australian and Canadian growth and the soundness of their banking systems," said Damien McColough, analyst at Westpac Bank, Sydney.
This was seen making both less prone to big swings.
"Reserve managers are long-term investors and are less likely to sell down on a short-term basis, unlike private sector funds who will sell if risks are growing," said Ian Gunner, portfolio manager at Altana Hard Currency Fund.
He expected reserve managers to keep buying and diversifying into the Aussie and Canadian dollars.
While a higher exchange rate would cause headaches to policymakers in both countries, where there has been concern about the domestic currency's strength, the Reserve Bank of Australia has so far played down the impact.
Even though both Canadian and Australian dollars are backed by sound banking systems, strong public finances and high credit ratings, investing in then is not without risks.
Their shares of daily turnover in the dominant UK market -- a gauge of their liquidity -- are in single digits, compared with nearly 33 percent for euro/dollar, 12 percent each for sterling/dollar and dollar/yen, a Bank of England survey showed.
Besides, an Asian slowdown could hurt the Aussie, given Australia's strong trade links to the region. Canada is also vulnerable to a U.S. downturn or a drop in crude oil prices.
However, the benefits for reserve managers, who seek to preserve capital over returns, outweigh risks, analysts say.
Traders say recent steady purchases of the Aussie by central banks has ensured it has not fallen below parity against the U.S. dollar, despite interest rates cuts by the RBA.
"Yield-seeking and quality-seeking flows have flocked to the Aussie. A drop to 90 U.S. cents hasn't materialised. If anything, it is trading in a narrow range," said a chief foreign exchange trader at an European bank.