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Dollar sags in late Europe

LONDON: The dollar drifted quietly lower throughout a languid European session as a widely anticipated cut in the Bundesbank repo rate failed to give it a lift.

The market's eyes are now trained firmly on the German central bank's council meeting tomorrow, although hopes are thin that the official discount or Lombard rates will be eased.

Today's second leg of the mammoth U.S. Treasury quarterly refunding auction was the market's other major focus.

The dollar was trading at 1.4055/62 marks and 91.47/54 yen by 1546 GMT, down from 1.4102/07 and 91.80/90 in late Europe on Tuesday.

After today's repo rate trim to 4.45 percent from 4.50 -- where it had been held for nine weeks -- analysts said the Bundesbank was likely to put off further cuts for a while.

Despite low expectations of easing tomorrow, the dollar was seen with some downside potential if rates were left unchanged.

"The Bundesbank has a habit of surprising people, so if there isn't a cut the dollar could fall through 1.40 marks," said King.

However, the U.S. unit is unlikely to break free of the 1.38-1.41 marks range which has confined it recently, cut or no cut, he said.

Dollar/yen also had a lacklustre day, as the market waited gloomily for the second leg of the U.S. Treasury's record $42.5 billion quarterly refunding auction.

Lukewarm Japanese bidding at Tuesday,s auction of three-year notes sparked disappointment.

It also diminished hopes that Tokyo's recent measures to stimulate investment overseas would send Japanese investors piling into Treasuries.

The U.S. is auctioning $13 billion of 10-year notes today, followed by $11.5 billion in 30-year bonds on Thursday.

The Federal Reserve's beige book of economic conditions left the dollar unmoved. The Fed said the rate of economic expansion was slowing in some parts of the U.S., although the economy continued to grow overall.

Manufacturing activity was still slowing in many of the 12 Fed districts, but some reported rising factory orders.

Sterling spent the day consolidating after its recent rally, and showed little reaction to minutes showing Chancellor Kenneth Clarke and Bank of England governor Eddie George were still at loggerheads over interest rates at their last meeting.

Analysts believe sterling will continue its bull run but they doubt it will decouple from the dollar.

The pound was at $1.6010/20 and 2.2490 marks by 1636 GMT, versus $1.6000/10 and 2.2568/73 in late Europe on Tuesday.

Mark/yen was at 65.09/12 from yesterday's 65.14/16, while the dollar was at 1.1621/26 Swiss francs compared to 1.1686/93.-Reuter