* Dollar edges up after biggest 1-day drop in 5 months
* Gold and oil moves closely linked to dollar
* Bernanke speaks on financial stability at Jackson Hole
By Eric Burroughs
TOKYO, Aug 22 (Reuters) - The dollar limped up on Friday,
recovering a little after its biggest one-day drop in five
months, but worries about the U.S. financial sector limited the
greenback's rally.
The dollar's sharp slide the previous day was mostly due to
market players being forced to unwind bets favouring the U.S.
currency after having chased it to eight-month highs, traders
said.
Through the first two weeks of the month, the dollar soared
as investors dumped positions they had made betting the global
economy would withstand the U.S. downturn and the credit crisis
by selling the euro, the Australian dollar and commodities.
Clear signs that the euro zone and other major economies are
losing steam have prompted investors to expect some central banks
starting to cut interest rates to shore up growth, just as the
Federal Reserve is expected to keep rates steady for a while.
"ECB rate cuts are not fully discounted in the market, so the
euro has more downside risk," said Koji Fukaya, a senior currency
strategist at Deutsche Bank in Tokyo.
"The medium-term trend is still positive for the dollar
against the euro and other currencies."
Analysts said the dollar had been overdue for a reversal of
those sharp gains, but it was still on the road to a medium-term
recovery after a seven-year slide to record lows.
Persistent doubts about the health of Fannie Mae <FNM.N>,
Freddie Mac <FRE.N> and investment bank Lehman Brothers <LEH.N>
have reminded investors about the housing-related troubles still
plaguing the United States. []
But those financial sector fears were not having the same
repercussions in financial markets as they did earlier in the
year, traders said.
Later in the day, Fed Chairman Ben Bernanke will speak on
financial stability at the Kansas City Fed's annual symposium in
Jackson Hole, Wyoming. []
The dollar climbed 0.5 percent from late U.S. trade to 108.95
yen <JPY=>, pulling up from a low of 108.13 yen hit the previous
day but off the seven-month peak of 110.67 yen hit this month.
Despite a brief surge the previous day, analysts said the
Japanese currency would likely struggle as stalled economy meant
the Bank of Japan was unlikely to raise interest rates from their
low 0.5 percent.
"Investors don't see any factor solid enough to support yen
buying beyond 108 a dollar," said Hideki Amikura, deputy general
manager of forex trading at Nomura Trust and Banking.
The euro dipped 0.2 percent to $1.4880 <EUR=>, recovering
from a six-month low of $1.4630 struck this week. Against the
yen, the single currency rose 0.3 percent to 162.08 yen
<EURJPY=R> after hitting a three-month low of 160.19 yen on
Thursday.
The dollar index, a gauge of its performance against a basket
of six major currencies, edged up 0.2 percent to 76.191 <.DXY>
after falling 1.2 percent on Thursday -- the biggest one-day drop
since March, when the index slumped to an all-time low.
"We continue to view recent gains in the U.S. dollar as
sustainable," UBS currency strategists said in a note to clients,
noting that more investors believe U.S. house prices should
bottom out sometime next year.
The national slide in U.S. property prices has been at the
root of the U.S. and global economic woes, leading to billions of
dollars of write-downs on mortgage securities that have hobbled
the global financial system.
The moves in the dollar and commodities remain closely linked
and have been reinforcing each other.
Oil prices were holding above $121 a barrel <CLc1> after a $5
spike the previous day, partly on worries about escalating
tensions between Russia and the United States. Gold slipped to
near $834 an ounce <XAU=> after surging nearly $27 on Thursday.
(Additional reporting by Rika Otsuka; Editing by Rodney Joyce)
