FOREX-Dollar edges higher vs euro but bearish tone remains

                                

                                
 * U.S. dollar gains; rate differentials to weigh
                                
 * U.S. debt limit seen pressuring dollar
                                
 * Euro, Aussie may pullback further vs yen
 (Updates prices, adds quotes, changes byline)
                                
  By Julie Haviv
                                
  NEW YORK, April 11 (Reuters) - The dollar paused from last
week's sharp decline against the euro on Monday, but a strong
bearish stance toward the greenback is seen persisting ahead of
next month's U.S. debt limit debate and on global central bank
monetary policy disparities.
                                
 The dollar found support after a U.S. government shutdown
was averted on Friday, and the dollar's rise was widely viewed
as overdue after its sell-off versus the euro for the last four
months. So far in April the dollar is still down more than 2
percent.
                                
 Interest rate differentials between Europe and the United
States, however, are expected to continue to support the euro
following the European Central Bank's 25 basis point rate hike
last week.
                                
 "The euro's drop today is nothing more than white noise,
and the pullback should prove shallow," said Jessica Hoversen,
foreign exchange and fixed income analyst at MF Global in New
York.
                                
 The dollar's negative tone should remain in place as long
as the U.S. Federal Reserve keeps interest rates low and while
central banks abroad, namely the ECB and Bank of England, move
closer to more normal borrowing costs, she said.
                                
 Even so, Hoversen said the euro will ultimately head lower
this year, particularly after Portugal last week sought
financial aid from the European Union and the International
Monetary Fund.
                                
 "The ECB rate hikes are going to torpedo the fiscally weak
peripheral nations such as Spain, in terms of higher bank
funding and mortgage costs," she said.
                                
 Risk reversals for one-month euro/dollar options are still
showing a solid bias for "puts" this year, though the currency
has rallied 8 percent so far in 2011.
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 For graphic on euro/dollar spot rate:
http://r.reuters.com/hyz88r
                                
 ECB in graphics: http://r.reuters.com/kah88r
                                
 The euro zone's debt struggle: http://r.reuters.com/hyb65p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
                                
 Inflation data, meanwhile, could potentially sway currency
sentiment this week, with Germany, Spain, Hungary, Sweden and
the United Kingdom all releasing reports on Tuesday. In the
United States, inflation data will be released on Thursday and
Friday.
                                
 DOLLAR WEIGHED BY DEBT CEILING
                                
 Currency traders have also started to talk about the U.S.
government debt hitting its limit in a month's time, a scenario
which should renew pressure on the dollar.
                                
 "We're having some sort of relief rally after the U.S.
government did not shut down as feared," said David Watt,
senior currency strategist at RBC Capital Markets in Toronto.
"But I think gains in the dollar will be limited because the
focus will be on the U.S. debt limit."
                                
 The United States is $95 billion away from reaching the
statutory $14.3 trillion ceiling, according to the latest
data.
                                
 In early afternoon New York trading, the euro <EUR=> fell
0.2 percent to $1.4442, after hitting a 15-month high around
$1.4486 on Friday. The high on electronic trading platform EBS
was $1.4485.
                                
 The yen, meanwhile, was off an 11-month low against the
euro and a 2-1/2-year trough versus the Australian dollar as
yet another earthquake in Japan led some investors to pare
bearish bets against the country's currency.
                                
 A fresh strong aftershock hit Japan on Monday, while the
evacuation zone around its crippled nuclear plant was expanded
because of high levels of radiation. For more see
[ID:nL3E7FA058].
                                
 The euro was down 0.4 percent at 122.24 yen <EURJPY=EBS>,
after trading as high as 123.33 yen earlier on trading platform
 EBS. The Australian dollar was down 0.3 percent at 89.15 yen
<AUDJPY=R>, having scaled a high of 90.04 yen, its strongest
since September 2008.
                                
 Technical indicators such as the 14-day relative strength
index and slow stochastics also suggested that the euro and
Australian dollar are in overbought territory against the yen,
pointing to the possibility of a near-term pull-back.
 (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Leslie Adler)