By Satomi Noguchi
TOKYO, March 25 (Reuters) - The dollar fell against the euro
and the yen on Tuesday as some investors looked for the U.S.
currency to resume its slide on lingering worries about the
ongoing damage caused by the credit crisis.
The U.S. unit fell back towards the psychologically key 100
yen mark and lost nearly 1 percent on the day versus the euro,
giving up earlier gains made after better-than-expected U.S.
housing data had stirred some hopes about the U.S. economy.
The dollar had also rallied broadly on Monday on news that
JPMorgan <JPM.N> had raised its offer for Bear Stearns <BSC.N> by
fivefold, which boosted investor appetite for risk and lifted
Wall Street stocks.
Market players had bought back the dollar to close short
positions before the Easter holidays, but they resumed selling on
doubts the U.S. currency will sustain a recovery despite the
Federal Reserve's aggressive efforts last week to boost liquidity
in the financial system.
"The big question now is whether the dollar's recovery was
only a position adjustment before the holidays and there is
something more that could rattle global markets," said Haruhisa
Takagi, head of the forex trading group at Sumitomo Mitsui Bank.
Many European financial markets reopen on Tuesday after being
closed on Friday and Monday for the Easter holidays.
"There may be some players looking to set new dollar shorts
before market volumes pick up," said a trader at a European bank
in Tokyo.
The dollar had climbed for four straight days, partly as
investors cashed in on winning positions before the holidays and
before the first quarter wraps up. Such profit-taking also
spurred a drop in gold and oil prices.
But by Tuesday those trends began to reverse, with gold
<XAU=> bouncing back to rise slightly.
The euro jumped 0.8 percent to $1.5551 <EUR=> from late U.S.
trade on Monday after falling as low as $1.5341 in the previous
session. The single currency is down from a record high of
$1.5905 hit last week.
The dollar slid 0.5 percent to 100.11 yen <JPY=>, erasing all
of its earlier gains to above 101 yen made after data on Monday
showed that sales of existing U.S. homes rose in February for the
first time since July.
The dollar had tumbled to a record low against the euro and a
13-year low of 95.77 yen last week when the announcement of Bear
Stearns' takeover at a rock-bottom price stoked fears that other
major financial firms could be casualties in the crisis.
The Australian dollar climbed about 0.6 percent against the
dollar to $0.9119 <AUD=D4> and rose 0.1 percent against the yen
to 91.31 yen <AUDJPY=R> on the improvement in risk appetite.
Rising stocks typically prod investors to borrow funds in
low-yielding currencies like the yen to buy higher-yielding
currencies in the carry trade. Japan's Nikkei share average
<> jumped 2.1 percent on Tuesday.
But some market players were wary about returning to risky
trades because several recoveries in risk appetite have proved to
be short-lived since the credit market crisis erupted last
August.
Investors will scour U.S. data later in the day that include
the S&P/Case Shiller indexes on U.S. housing prices, along with
the Conference Board's report on consumer confidence in March.
Analysts said major currencies would remain choppy.
"This volatility will persist as the debate rages on as to
the length and depth of the U.S. slowdown," said currency
strategists at RBC Capital Markets in a note to clients.
(Additional reporting by Eric Burroughs and Chikako Mogi;
Editing by Chris Gallagher)
