* Euro up as ECB hints at slow-motion exit strategy
* BofA news triggers risk appetite, pushes dollar down
* Yen pulls further away from 14-yr highs vs dollar
(Updates prices, adds detail about U.S. data, Bernanke
hearing)
By Steven C. Johnson
NEW YORK, Dec 3 (Reuters) - The euro clung to gains against
the U.S. dollar on Thursday after the European Central Bank
hinted it would slowly start withdrawing emergency spending
while the yen fell amid fears Japan may move to weaken its
currency.
Though the ECB left interest rates at record lows, its
president Jean-Claude Trichet said the next 12-month
refinancing operation for banks would be the last. The bank
also lifted its growth forecast for 2010. []
That sent the euro near a 16-month high around $1.5140 and
pushed it to its highest level against the yen in a week. But
it pared those gains after Trichet said interest rates remain
appropriate and did not offer a timetable for winding down the
ECB's ultra-loose monetary policy.
Such policies tend to undermine a currency's value because
they increase money supply and risk higher inflation.
"He hinted that they'll do something about an exit policy,
so the first knee-jerk reaction was euro positive, but he's not
ready to endorse a full exit quite yet, so it's really neither
overly supportive of nor detrimental to the euro," said Boris
Schlossberg, head of research at GFT Forex in New York.
The euro was last at $1.5079 <EUR=>, up 0.3 percent. It
rose 1 percent to 132.97 yen <EURJPY=>.
Data showing U.S. manufacturing contracted in November
after growing modestly the prior month raised doubt about the
strength of U.S. recovery and undermined risk appetite,
weakening stocks and trimming euro gains. []
The yen was under pressure for the second straight day
after the Bank of Japan said earlier this week it would provide
new three-month funding to banks to combat deflation and after
top officials warned that the currency had grown too strong.
The dollar was up 0.8 percent at 88.18 yen <JPY=>, off a
14-year low of of 84.82 yen hit last week.
BOJ Governor Masaaki Shirakawa said the central bank does
not target foreign exchange for monetary policy but "if the
bank's easy stance becomes widely known in markets, it will
have certain effects on the currency market in the long run."
A report that Japan may consider selling some reserves to
fund stimulus spending at home did not appear to have much
effect on the yen's moves Thursday, analysts said.
Elsewhere, sterling fell 0.3 percent to $1.6585 <GBP=>, the
dollar rose 0.5 percent to 1.0570 Canadian dollars <CAD=> and
fell 0.1 percent to 0.9992 Swiss francs <CHF=>.
In Europe and the United States, markets are focused on
when authorities will start withdrawing stimulus spending.
Analysts said Trichet had to walk a thin line, as any hint of a
rate rise would prompt traders to bid up the euro, especially
as the U.S. Federal Reserve has said it would keep its own
rates low for an extended time.
"He's saying the outlook for economic growth is still
uncertain, which means he's not overly confident, and it seems
that is capping the euro gains," said Hidetoshi Yanagihara,
senior FX trader at Mizuho Corporate Bank in New York.
Fed Chairman Ben Bernanke will likely be grilled on his
intentions regarding monetary policy and his performance atop
the U.S. central bank during renomination hearings before
Congress.
In his opening remarks, Bernanke said the Fed's forceful
actions thus far have prevented a devastating financial crisis
from turning into something even worse. []
Earlier, news that Bank of America would repay bailout
funds to the U.S. government boosted risk appetite and
suggested improvement in the banking sector. That aided stocks
and higher-yielding currencies at the expense of the dollar.
(Additional reporting by Tamawa Desai in London; Editing by
Chizu Nomiyama)
((steven.c.johnson@reuters.com; +1 646 223 6346; Reuters
Messaging: steven.c.johnson.reuters.com@reuters.net))
