* Dollar dips, FT says sovereign wealth funds cut exposure
* Analysts say report no surprise, impact likely short-lived
* Traders watch oil and await JPMorgan/Merrill results
By Eric Burroughs
TOKYO, July 17 (Reuters) - The dollar dipped on Thursday
after a report that sovereign wealth funds were seeking to reduce
their exposure to the U.S. currency, taking some wind out of its
rebound the previous day on tumbling oil prices and rallying
stocks.
Analysts said the report in the Financial Times highlighted
the gradual shift away from the dollar that has been taking place
the past few years and helped fuel its slide to record lows
against the euro. []
"The article could have spooked the market a little, although
there was nothing 'new' about the information reported," said
Sharada Selvanathan, a currency strategist at BNP Paribas in Hong
Kong.
Central banks in Asia have accumulated massive dollar
reserves by intervening to prevent their currencies from
strengthening against the dollar, but traders have frequently
cited them as selling some of their dollars for the euro, pound
and other currencies.
Some of the reserves built up from intervention have been
shifted to sovereign wealth funds, like the China Investment
Corp, to diversify investments and returns.
The dollar recovered on Wednesday as oil prices fell $4 a
barrel and upbeat earnings from No. 5 U.S. bank Wells Fargo eased
some investor fears about the U.S. economy and financial markets.
The S&P 500 <.SPX> jumped 2.5 percent, with bank shares
posting the biggest one-day rise in 16 years and the stocks of
embattled mortgage lending giants Fannie Mae <FNM.N> and Freddie
Mac <FNM.N> both soaring about 30 percent.
But traders were far from convinced that the worst is over in
the nearly year-old credit crisis after the latest flare-up of
volatility surrounding the health of Fannie and Freddie.
Market players are keeping a close eye on whether oil prices
fall further, which would relieve some of the pressure on the
struggling U.S. economy, and quarterly results from JPMorgan
Chase <JPM.N> and Merrill Lynch <MER.N> later in the day.
"It is not a situation where you can be optimistic about the
U.S. economy," said Motonari Ogawa, director for Barclays Bank in
Tokyo.
"Solid selling emerges when the dollar rises, and in the near
term, the risks seem tilted towards the downside," said Ogawa,
adding that the dollar could fall towards 101-102 yen in the next
week or two.
The dollar slipped 0.1 percent from late U.S. trade to 104.89
yen <JPY=> but was up from a two-month low of 103.77 yen hit on
Wednesday.
Market players said the dollar fell against the yen on
selling by Japanese exporters and short-term speculators, but
later drew some support due to buying related to Japanese mutual
funds that invest in overseas assets.
The euro edged up 0.2 percent to $1.5857 <EUR=> but has
pulled back from a record peak of $1.6040 struck on trading
platform EBS earlier in the week.
The single currency rose about 0.1 percent to 166.33 yen
<EURJPY=R>, having retreated from an all-time high of 169.69 yen
hit earlier in the week.
The dollar index, which tracks its performance against a
basket of six major currencies, dipped 0.2 percent to 71.905
<.DXY> and has retreated back towards a record low of 71.459 hit
in March after the sudden demise of investment bank Bear Stearns.
Worries over the U.S. financial system reached fever pitch
this week after the government came up with a rescue plan to
reassure investors in Fannie and Freddie, just as one of the
country's biggest mortgage banks collapsed.
Selvanathan at BNP Paribas said the rising threat of
stagflation in the United States should be damaging for the
dollar. Long-term U.S. interest rates soared the previous day on
data showing consumer price inflation accelerating to a 17-year
high of 5 percent in June.
Federal Reserve Chairman Ben Bernanke also acknowledged the
difficulties policymakers were facing from the twin threats of
financial turbulence and surging inflation pressures but said
restoring market stability was a top priority.
Oil was up slightly in Asian trade near $135 a barrel <CLc1>
after sliding as low as $132 the previous day.
The dollar was also helped on Wednesday after Bernanke told
Congress that currency intervention may be warranted in certain
conditions.
(Additional reporting by Masayuki Kitano; Editing by Chris
Gallagher)
