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Dollar closes higher amid US stock gains

NEW YORK: The dollar pushed higher on Monday, energised by a rally in US equities, but it failed to break out of familiar ranges as dealers awaited a slew of economic indicators in the week ahead for fresh direction.

Moving nearly in lock-step with the Dow Jones industrial average, the dollar erased its overnight losses against the yen and bounced up about 1.0 percent against the Swiss franc and about 0.8 percent against the euro.

"The move (up) in the Dow helped reassure the market somewhat after the sharp fall we saw on Friday, and that had positive implications for the dollar across the board," said Alex Beuzelin, forex market analyst at Ruesch International.

Fears that a protracted fall in US stocks could weigh on US consumer confidence and translate into softer growth had driven the dollar to a one-week lows at 108.07 yen overnight, about 1.5 percent below last week's five-month peaks.

The Dow was trading about 0.9 percent higher in late Monday dealing, staging a comeback after a 2.0 percent drop on Friday that had left the index 11 percent below its mid-January highs.

Similarly, the technology-heavy Nasdaq composite index nudged higher on Monday after shedding 2 percent on Friday, just days after setting records earlier last week.

Dealers said the euro's inability to sustain gains above $0.99 prompted them to trim euro holdings as New York trading began to get under way. The euro also came under pressure against other currencies, dropping about half a percent against the yen.

Meanwhile, a report about the manufacturing sector in the Southeastern United States suggested a slight slowdown in January with the key business conditions index falling to 9.8 from a revised 12.6 in December.

Analysts had expected the robust US economy to begin slowing this year but a number of recent data have thrown cold water on that idea, suggesting instead the Federal Reserve would need to tighten more aggressively in coming weeks.

Fears about rising interest rates had dented the Dow last week and hurt the dollar in turn.

Key clues about the direction of interest rates may appear later this week -- both from inflation data and Fed Chairman Alan Greenspan's semi-annual Humphrey Hawkins testimony on the state of the economy to Congress on Thursday.

For the euro, which made repeated forays above 99 cents on Monday but then slumped back, Germany's Ifo business climate survey out later this week was seen as key.

A "strong Ifo might be just the excuse we need to push through parity," said Michael Metcalfe, treasury analyst at NatWest Global Financial Markets in London.

In the meantime, the yen was expected to remain the biggest beneficiary of any stock-related woes the dollar may experience, with disappointment rife at the US currency's failure last week to extend its rally above 110.

Overnight, the dollar's pullback against the yen had gathered speed in Asia amid talk US funds were unwinding carry trades which had involved using the yen as a funding vehicle for purchases of higher-yielding dollars and sterling.

Sterling also caught currency dealers' eyes on Monday, with a surprise fall in British input prices causing the pound to extend losses it had begun to rack up at the end of last week.

Traders said the pound was being undermined by speculation that British rates are nearing their peak after last week's rate rise and by concern that more British capital was set to flow abroad. -Reuters