By Rika Otsuka
TOKYO, April 21 (Reuters) - The dollar edged towards a
seven-week high against the yen on Monday, as Citigroup's results
fuelled hopes that the worst of the bank losses stemming from the
U.S. housing sector are out.
Citigroup <C.N>, the largest U.S. bank, on Friday reported a
quarterly loss of $5.1 billion, but investors welcomed its
aggressive steps to resolve credit problems and felt more
confident about the financial sector. []
Credit jitters were further soothed on efforts by Royal Bank
of Scotland <RBS.L> to shore up its balance sheet, with Britain's
second-biggest bank expected to announce this week Europe's
largest-ever rights issue of up to 12 billion pounds and over $10
billion of losses on toxic investments. []
"Market participants are likely to buy back the dollar a bit
more," said Hideki Amikura, forex manager at Nomura Trust and
Banking. "But the dollar is not likely to stay on its current
upward trend in the long term as one cannot yet say that credit
markets have come back to normal."
The dollar edged up 0.2 percent on the day to 103.85 yen
<JPY=>, not far from a seven-week high of 104.66 yen hit on
trading platform EBS on Friday.
The euro was steady at $1.5825 <EUR=>, off a record high of
$1.5985 hit on EBS last week.
Many traders believe the euro is still on an upward trend on
expectations that European interest rates will stand pat at 4.0
percent until later this year.
European Central Bank Governing Council member Klaus
Liebscher told Reuters last week that there was no room to cut
euro zone rates, adding that he would not rule out a tightening.
[]
The Federal Reserve, meanwhile, is expected to cut rates
further from the current 2.25 percent. More Fed rate cuts would
help keep euro zone rates well above those in the United States,
maintaining the euro's yield appeal.
The single European currency edged up 0.2 percent to 164.30
yen <EURJPY=R>. On Friday, the euro had risen as far as 164.68
yen on EBS, the highest since late December, as receding concerns
about the financial sector and a rise in global stocks rekindled
investor's risk appetite.
The Nikkei share average <> was up 1.3 percent in late
afternoon trade, tracking a rally late last week on Wall Street
on reassuring U.S. earnings reports. []
The Australian dollar was supported after data showed a
record jump in Australia's producer prices in the first quarter
[], sparking suggestions that consumer prices could
also prove higher than expected.
The Aussie rose 0.7 percent to $0.9397 <AUD=D4>.
Against the Japanese currency, the Aussie <AUDJPY=R> struck a
fresh seven-week high of 97.65 yen, before trading at 97.50 yen,
up 0.8 percent on the day on carry trades.
In carry trades, market players use low-yielding currencies
such as the yen to finance buying of assets offering higher
returns elsewhere.
BANK OF AMERICA EARNINGS EYED
Despite the dollar's hefty gains in the past few sessions,
investors were not sure how long the currency's firmness thanks
to easing credit fears will last.
For more clues, investors were awaiting earnings reports from
Bank of America <BAC.N>, the No.2 U.S. bank, due later in the
day.
"If the bank's earnings are within expectations, the dollar
will likely rise further," said Mitsuru Sahara, senior trader at
Bank of Tokyo-Mitsubishi UFJ.
But if the report card contains some nasty surprises,
investors will likely see no fundamental changes in the long-term
downward trend in the dollar, he said.
Sterling was steady at $1.9992 <GBP=D4> after gaining sharply
against the euro and the yen the previous session on
short-covering.
The Bank of England is expected to announce later in the day
a plan to swap 50 billion pounds ($99.9 billion) of government
bonds for riskier mortgage debt to ease the credit crunch. But
investors expect the market impact to be minimal as media have
already reported the plan since late last week []
(Additional reporting by Satomi Noguchi; Editing by Chris
Gallagher)
