* US dollar recovers after Russia Treasury comments
* Higher risk appetite fades, euro, sterling retreat
* Euro trades in broad $1.3952-$1.4145 range on Wednesday
* Some doubts about strength of global recovery linger
(Updates, adds comment, detail)
By Steven C. Johnson
NEW YORK, June 10 (Reuters) - The U.S. dollar edged up
against the euro on Wednesday, erasing losses suffered after
Russia's central bank said it will diversify its currency
reserves by cutting U.S. Treasury purchases and buying
IMF-backed bonds.
The euro had firmed earlier as investors betting the worst
of the global slump was over saw less need to buy dollars as a
safe haven, and Russia's warning added to euro gains.
But analysts said any Russian plans to diversify away from
dollars would take time, partly because the International
Monetary Fund bonds the Russians mentioned they would buy
instead do not yet exist.[]
Traders also said the euro's rise to $1.4145 <EUR=EBS>
triggered automatic sell orders that pushed it to $1.3952
before moving to $1.3980, down 0.6 percent. Also, some analysts
said lingering doubts about the strength of any economic
recovery capped high-yielding currencies and stocks.
"These are rather violent markets without huge conviction,
so when the euro got a bit heavy, people headed for the door,"
said Firas Askari, head of FX trading at BMO Capital Markets,
adding "it pays to be nimble right now."
David Bradley, currency trader at Scotia Capital in
Toronto, said the market was "going through one of those
phases, with everyone thinking we'd gone too far and deciding
to take profits or switch positions."
The dollar rose 0.8 percent to 98.22 yen <JPY=EBS> while
sterling retreated from a $1.6473 peak to trade at $1.6326
<GBP=D4>, up 0.1 percent. Earlier gains came on data showing
the first rise in UK industrial output since February 2008.
The U.S. dollar saw a sharp fall against major currencies
on Tuesday, after a jump last week in the wake of better than
expected U.S. employment data.
DOLLAR DIVERSIFICATION
Russia's plans to diversify its reserve holdings, detailed
ahead of next week's Moscow meeting among heavyweight emerging
market countries China, Brazil, India and Russia, sent U.S.
Treasury yields higher early Wednesday and initially added to
broad-based dollar selling.
Russia holds about 30 percent of its $404.2 billion foreign
exchange reserves in Treasuries, making it the fifth largest
holder of U.S. government debt. []
But analysts said Russia's roughly $140 billion in
long-dated U.S. Treasuries pales in comparison to the sheer
volume of outstanding debt. The Treasury plans to issue some $2
trillion this year alone.
With the U.S. budget deficit expected to hit $1.8 trillion
this year and rise further from there, "of course Russia,
China, everyone wants to diversify their holdings in the long
run," Askari said.
"But they're all long Treasuries and can't just dump them
at once," he added. "And for now, the U.S. Treasury market is
still the deepest and most liquid available."
In the Treasury market, the benchmark 10-year note yield
rose to 3.92 percent on Wednesday, near its highest level since
November, and analysts said this would likely heighten interest
in an afternoon auction of $19 billion in 10-year notes.
But Boris Schlossberg, director of FX Research at GFT
Forex, said recent auctions have attracted sizable demand
despite rising yields and U.S. budget deficit concerns.
"So for the time being, I think (the Russia comments about
the dollar) are a tempest in a teapot," he said.
Some analysts said investors' hopes for a global recovery
were overdone and could spark a safe-haven dollar rally. "High
energy prices could nip recovery in the bud, but markets are
not reflecting the reality on the ground," said Forex.com chief
strategist Brian Dolan. "We like the dollar from here."
