* Bernanke gives less bullish outlook on U.S. economy
* Caterpillar posts strong Q2 earnings
* Sterling down, Bank of Canada holds rates steady
(Updates prices, adds quotes)
By Gertrude Chavez-Dreyfuss
NEW YORK, July 21 (Reuters) - The dollar rebounded from
six-week lows against the euro on Tuesday after Federal Reserve
Chairman Ben Bernanke gave a cautious assessment on the U.S.
economy, which curbed risk appetite.
Risk appetite had improved the last few sessions after a
string of stronger-than-expected U.S. corporate earnings for
the second quarter.
Bernanke, in his testimony before the House Financial
Services Committee, said unemployment was likely to remain high
into 2011, which he warned could undermine consumer confidence
and derail a recovery. See [].
Andrew Wilkinson, senior market analyst at Interactive
Brokers in Greenwich, Connecticut, said Bernanke's "cautious
tone" threw the dollar a lifeline, especially against the euro,
which had earlier climbed to its highest level since early
June.
"His bottom-line assessment that the U.S. economy is still
nowhere near ready for a policy reversal flew in the face of
equity market investors who have been busily discounting a
return to growth," said Wilkinson.
In midday New York trading, the dollar fell 0.9 percent
against the yen to 93.33 <JPY=>.
The euro turned lower against the dollar, falling 0.2
percent to $1.4197 and erasing gains that took it to six-week
highs earlier in the day at $1.4277 <EUR=>, according to
Reuters data.
The ICE futures' dollar index <.DXY> ,a measure of the
greenback's value against a basket of six currencies, was
little changed at 78.872. Earlier, the index had fallen to
78.591, its lowest since early June.
FEW SURPRISES IN BERNANKE TESTIMONY
Overall, Bernanke's remarks provided few surprises,
analysts said, especially after his essay in Tuesday's Wall
Street Journal, in which he said the Fed does have an exit
strategy plan from the U.S. central bank's quantitative easing
measures.
But Bernanke's comments on unemployment and consumer
spending undercut the euro and high-yielding currencies such as
the Australian and New Zealand dollars.
Earlier in the day, investor appetite for risk was evident
in equity markets, especially after Tuesday's generally strong
earnings. Heavy equipment maker Caterpillar <CAT.N> ,for
instance, posted a second-quarter profit and gave an upbeat
earnings outlook for 2009. [].
Some analysts, however, sounded a note of caution on recent
U.S. earnings.
"I would say that the earnings beats were the slightest of
margins. There were a couple of misses on the revenue side,"
said Jacob Oubina, senior currency strategist, at Forex.com in
Bedminster, New Jersey.
"So a lot of the earnings generated in the second quarter
were due to cost-cutting measures, mainly on the employment
side. The sustainability of the beats as we head into the
fourth quarter is therefore questionable," Oubina said.
The U.S. dollar, meanwhile, retraced losses against the
Canadian dollar to trade flat on the day at C$1.1063 <CAD=>.
The greenback had earlier fallen to session lows at C$1.0967
after the Bank of Canada left interest rates at a historic low
of 0.25 percent and gave an upbeat economic forecast.
[].
Sterling underperformed, trading down 0.8 percent at
$1.6418 <GBP=> after public finances data showed the worst June
performance on record, with net debt standing at 56.6 percent
of gross domestic product.
(Editing by Leslie Adler)
