* Dollar clings to gains vs euro, yen up on Asia stock fall
* Oil prices down this week, but credit concerns resurface
* G8 comments on dollar eyed
By Chikako Mogi
TOKYO, July 8 (Reuters) - The dollar inched up against the
euro on Tuesday, supported by a sharp drop in oil prices this
week, even as investors fretted about a further deterioration
in the financial system's health.
Credit concerns resurfaced on Monday after a Lehman
Brothers report said a pending accounting change could force
Fannie Mae <FNM.N> and Freddie Mac <FRE.N>, the two largest
U.S. mortgage funders, to raise a combined $75 billion in
capital at a difficult time. []
The report on Fannie Mae and Freddie Mac drove Wall Street
shares down and squashed a dollar rebound spurred after oil
slid over $4 a barrel on Monday.
Hideki Amikura, deputy general manager at Nomura Trust and
Banking, said the dollar's resilience despite the dire capital
situation of Fannie Mae and Freddie Mac could reflect market
hopes for a government bail-out.
"Despite the seriousness of the issue, the market remains
calm, suggesting there may be expectations of the use of public
funding to support these institutions," he said, adding that
the dollar was likely to stay in a 106-108 yen range this
month.
Market players were keeping an eye on oil for the dollar's
near-term direction. Oil was up about $1 on Tuesday near $142 a
barrel <CLc1>, recovering only part of Monday's fall but off
the record $145.85 hit last week. []
The euro edged down 0.2 percent to $1.5698 after falling to
a low of $1.5679, well off the intraday high of $1.5735.
The dollar dipped 0.2 percent to 106.92 yen <JPY=> after
seesawing between 106.66 yen and 107.75 yen on Monday.
A 2.5 percent fall in Tokyo's Nikkei average <> helped
support the yen. The low-yielding currency tends to benefit
when equity markets falter as investors trim positions in carry
trades by selling higher-yielding currencies.
But with carry trades not nearly as widespread as they were
before the credit crisis broke last year, the yen's gains
during such bouts of risk aversion have been limited.
The euro fell 0.6 percent to 167.86 yen <EURJPY=R>. The
Australian dollar <AUDJPY=R> and New Zealand dollar <NZDJPY=R>,
both recipients of carry-trade funds, both dropped about 0.4
percent.
The dollar index, which tracks the currency's performance
against a basket of six currencies, was up 0.1 percent at 72.76
<.DXY>.
G8 TO MENTION DOLLAR?
Market players were watching the annual summit of the Group
of Eight industrialised nations for any comments on the
dollar's weakness.
German Chancellor Angela Merkel pressed other leaders for
language on exchange rates in the economic communique, a G8
diplomat tolds Reuters.
U.S. President George W. Bush reaffirmed at the summit that
he supported a strong dollar, a U.S. official told reporters.
Earlier a Japanese official said there was no specific
discussion about currency market moves at the session on the
economy. []
The euro has dropped about 2 U.S. cents since late last
week on diminishing expectations that the European Central Bank
would boost interest rates again later in the year, traders
said.
"There was disappointment that the ECB said it had no bias
for its monetary policy, as some players had bet on a more
hawkish tone to keep alive prospects of more rate hikes," said
a senior dealer at a Japanese trading house.
The ECB raised its benchmark rate to 4.25 percent from 4
percent last week to bring inflation under control. But it then
said it had no bias as regards its policy outlook, suggesting
it was unlikely to tighten again soon.
Amikura at Nomura Trust and Banking said the drop in oil
prices may also have prompted short-term players to take
profits on the euro.
(Additional reporting by Eric Burroughs; editing by Neil
Fullick)
