* Dollar holds gains after data, central bank comments
* Outcome of ECB, BoE meetings in focus
By Aiko Hayashi
TOKYO, June 4 (Reuters) - The dollar mostly held its ground
on Thursday after a big reversal from 2009 lows on comments by
Asian monetary officials and weaker-than-expected U.S. data that
took the wind out of a risk rally in other major currencies.
Investors had a reality check on Wednesday when data showed
the vast U.S. service sector contracted for the eighth straight
month in May and employers axed 532,000 private-sector jobs,
undermining optimism about an economic turnaround.
[]
Comments by several Asian monetary officials to Reuters that
Asian central banks would keep buying Treasuries even if the
rating on U.S. government debt was cut also boosted the dollar.
The greenback has come under pressure in the past few weeks
partly because the market is nervous about the ability of the
United States to finance its growing debt issuance.
[]
The dollar rebounded more than 1 percent from 2009 lows
against a basket of six currencies <.DXY> on Wednesday although
the move stalled by Thursday as investors awaited policy
decisions by the European Central Bank and the Bank of England.
"Asia is left picking up the pieces after a big move
overnight," said a senior trader at a European bank in Hong Kong.
He said the dollar's rise was a correction to its steep
losses of recent weeks rather than a change in trend. "The dollar
has retraced strongly and Asia is having a day of consolidation."
The euro was flat at $1.4170 on electronic trading platform
EBS <EUR=EBS>, well off its 2009 high of $1.4339 after falling 1
percent on Wednesday.
The dollar gained 0.2 percent to 96.19 yen <JPY=>, while the
euro <EURJPY=> rose 0.2 percent to 136.21 yen.
The ECB is expected to hold interest rates at 1 percent when
it announces its decision at 1145 GMT. The market is waiting to
see details of its covered bond purchase plan to keep long-term
rates down and see what it projects for economic growth and
inflation this year and next. []
Sterling <GBP=D4> fell 0.4 percent to $1.6233 after hitting a
seven-month peak of $1.6664 on Wednesday. It has gained about 19
percent since mid-March.
The Bank of England is expected to keep its benchmark rate at
0.5 percent in its announcement at 1100 GMT. It is also seen
likely to stick to its 125 billion pound ($208 billion) target
for quantitative easing. []
RISK RALLY AND THE YEN
Losses in Wall Street shares on Wednesday added to
profit-taking on the likes of the euro, sterling and the
Australian dollar, which have benefited against the dollar and
yen as investors have plucked up courage to shift money out of
the safe-haven dollar.
"The U.S. data reminded market participants once again that
the economic outlook isn't as rosy as many have been saying
lately," said Hideki Amikura, deputy general manager of forex
trading at Nomura Trust and Banking.
One analyst said there had been some importer demand out of
Tokyo for cross/yen early in the day. The Australian dollar
<AUDJPY=R> gained 0.3 percent to 76.92 yen but the New Zealand
dollar <NZDJPY=R> later lost ground, falling 0.3 percent.
Both tumbled on Wednesday, with the Aussie losing more than 2
percent against the dollar and the kiwi more than 3 percent. On
Thursday the Aussie edged up 0.1 percent to $0.8007 <AUD=D4> and
the kiwi slipped 0.5 percent to $0.6302 <NZD=D4>.
Australia's central bank governor said there was scope to
ease monetary policy further but the economy was well-placed for
expansion towards the end of the year. []
Longer term, questions still hang over the dollar, with
investors concerned about rising U.S. government debt and upward
pressure on bond yields, which could feed through to mortgage
lending rates and potentially stunt a recovery.
The market is expected to keep a bias for dollar selling as
investor risk-appetite is gradually recovering, supported by
hopes for the economic outlook, but some want to see if the time
has come for a change in the dollar's trend.
"The market focus is how U.S. Treasury yields will move after
Asian monetary officials' comments and the U.S. sending the
Treasury secretary to China to make sure it will support
Treasuries," a trader at a Japanese bank said.
"If the Treasury market calms down it would mean the
elimination of one negative factor for the dollar. But on the
other hand, if more evidence such as positive economic data lifts
hopes for the economy, it would weigh on the dollar. So it's hard
to forecast which way the dollar is heading," he said.
Federal Reserve Chairman Ben Bernanke told the House of
Representatives Budget Committee that rising U.S. debt was
contributing to a spike in longer-term interest rates and now was
the time to start working on reining in deficits.
But he gave no clue whether the U.S. central bank would step
up its purchases of government debt or mortgage-backed securities
to offset rising borrowing rates, something investors have been
watching for. []
"In the mid to long term it's hard to deny the presence of
downward pressure on the dollar because of various fallout from
growing deficits in the U.S. economy," said Tsutomu Soma, a
senior manager at Okasan Securities.
(Additional reporting by Charlotte Cooper and Kaori Kaneko;
Editing by Michael Watson)
