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Dollar mixed ahead of data, Greenspan

NEW YORK: The dollar drifted lower against the euro on Wednesday as the market held its breath ahead of Thursday's congressional testimony by Federal Reserve Chairman Alan Greenspan and key US and European data.

"There's nothing to sink your teeth into until tomorrow. The market is going to be sidelined," said Vincent Palazzolo, chief foreign exchange dealer at Sumitomo bank in New York.

The euro climbed more than half a percent against the dollar to 98.66 cents and nearly three-quarters of a percent against the yen to 107.91 yen.

The US currency also inched up against the yen late in the New York session to stand near 109.40 yen, emboldened by the euro's strength against the Japanese currency, although it spent most of the day zigzagging in uneventful trading.

"It's really not so much dollar weakness as yen weakness so that's why we're continuing to see euro/yen climb. There are not a lot of flows and the market is still very choppy," said Ralph DelZenero, vice president at Banc One Capital Markets in Chicago.

"The market is trying to find a direction and having difficulty, and it's just going to the path of least resistance," he added.

Current trading ranges were well worn, traders said, as the market geared up for Greenspan's semi-annual Humphrey-Hawkins monetary policy report to Congress for hints on the direction of US interest rates.

Inflation-sensitive Wall Street was already on edge following the release of data showing stronger than expected US housing starts for January, which underscored the strength of the US economy and fuelled inflation fears.

The Dow Jones industrial average closed down 157 points for the day at 10,561 while the technology-heavy Nasdaq was slightly firmer, closing up 6.9 at 4,428.

The market was also looking ahead to Germany's key Ifo institute survey of business sentiment for January and US producer price data on Thursday for further direction.

The market paid scant attention to comments from European officials regarding the euro, which fell below the psychologically important one-to-one level with the dollar three weeks ago and has failed since to emerge above it.

German Finance Minister Hans Eichel said the euro could benefit as the gap in growth rates of Europe and the United States narrowed.

Bank of England Governor Eddie George said the euro had clearly established itself as a currency for international finance.

Meanwhile, sterling extended gains posted on the back of stronger than expected British average earnings data, which fanned expectations of higher rates.

Earnings jumped 5.5 percent in the three months to December from a year earlier, the biggest increase since July 1998 and above the 5.0 percent rise expected by analysts.

The pound rose as far as $1.6084 and to 61.23 pence per euro, moving away from its January six-month lows below $1.59 and Monday's 10-day low at 62.32.

The Canadian dollar CAD also rallied against the US currency after the Bank of Canada said it expected inflation to rise in the early part of this year amid robust economic growth, climbing as high as 1.4497 per US dollar.

Traders said fears of rising inflation are expected to trigger further interest rate hikes by the Canadian central bank, thereby benefiting the Canadian currency.-Reuters