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Dollar easier but supported by US stock rise

TOKYO: The dollar drifted marginally lower against the yen in late Tokyo trade on Tuesday, weighed down by options-linked offers and selling by exporters, but it retained its overnight firmness after a rally in US stocks.

The greenback moved in a tight range from 108.62 to 109.08 yen, with many participants sidelined ahead of congressional testimony by Federal Reserve Chairman Alan Greenspan on Thursday and US producer and consumer price indices to be released later this week.

Dealers detected sales by Japanese investors and exporters above 109 yen, as well as sales to protect options at strike prices near 110 yen.

"The recovery on Wall Street overnight helped the dollar across the board, but it lacked the energy to extend its gains against the yen after meeting offers above 109 yen," a European bank dealer said.

"The market is waiting for Humphrey-Hawkins (testimony by Greenspan). Also, options orders scattered around 110 yen limited bidders' appetite," the dealer said. "Some options are rumoured to be expiring later in the week so the market will test 110-yen resistance again after the expiry."

Meanwhile, bids from Japanese trust banks firmly supported the dollar at 108.50 yen.

Dealers became reluctant to push the dollar down actively after comments by Japanese Vice Finance Minister for International Affairs Haruhiko Kuroda that the government remains concerned that the yen is too strong given the economy's tepid recovery.

Weakness in the benchmark Nikkei share average also limited active yen-buying in the afternoon, dealers said. The Nikkei dropped 188.63 points or 0.96 percent to close at 19,367.83.

The dollar was quoted at 108.69/79 yen compared with 108.88 yen in US trade on Monday. The euro was at $0.9795/05 against $0.9785.

Dealers said the euro's downward trend against the yen may have indirectly weighed on the dollar/yen rate.

Some dealers cited vague talk that Japanese banks were unwinding short-yen positions against the euro due to Russia's rescheduling of $31.8 billion in debt, agreed with the London Club on Monday.

"I doubt that Russia's rescheduling...directly pushed down the euro against the yen. But many Japanese investors and exporters still have to sell the euro ahead of the fiscal year end (on March 31)," a Japanese commercial bank trader said.

"The euro has been under pressure against the yen after meeting heavy sales above 108 yen last week," he said. "It appears that the market is still slightly long on euros and some are unwinding those longs after recent rapid falls in euro/yen."

Some dealers said Japanese retail investors were rumoured to be selling euro-denominated investment trust funds.

The euro was at 106.52/60 yen from 106.57 in US on Monday, managing to hold above 106.30/40 yen, the level where stop-loss sell orders were rumoured.

Sentiment towards the euro also turned somewhat bearish after the head of Germany's largest industrial union IG Metall on Monday rejected a call for wage moderation from European Central Bank President Wim Duisenberg and said the union was sticking to its 5.5 percent pay claim.

In the morning, the market showed muted reaction to the Bank of Japan's slight upgrading of its economic assessment in a monthly report on Tuesday.

Dealers said they were more focused on what will be revealed about Japan's growth prospects when October-December gross domestic product data is released, likely in early March.

Elsewhere, sterling recouped some overnight losses after Bank of England Governor Eddie George said on Monday the British economy is currently growing close to capacity and the pace of growth is unsustainable.-Reuters