(Recasts, updates prices, adds comment, adds detail)
By Steven C. Johnson
NEW YORK, Feb 12 (Reuters) - The dollar fell against the
euro on Tuesday but gained on the yen after Warren Buffett said
he had offered to assume troubled bond insurers' liabilities, a
move that may ease recent credit market turmoil.
U.S. equities rallied after Buffett told CNBC television
that the Berkshire Hathaway plan would cover $800 billion in
municipal bonds. That helped lift the dollar against the
low-yielding yen, which tends to rise with risk aversion but
suffers when investor outlook brightens.
But a renewed risk appetite also boosted the euro against
the yen and pushed the European currency to a session peak of
$1.4614 <EUR=> before easing to $1.4598, up about 0.5 percent
from late Monday.
"It seems risk appetite is returning, though not really to
the dollar's favor," said Amo Sahota, senior currency
strategist at HiFX, an online FX firm in San Francisco. "It
will be interesting to see how equities play out today in
response to the Buffett news, as I'm not sure it's enough to
turn markets around."
Bond insurers guarantee more than $2.4 trillion of debt and
have been struggling to hold on to their top credit ratings
after suffering heavy losses from backing mortgage securities
that have plunged in value.
Markets worry that downgrades would rattle credit markets
further and set off more large write-downs on Wall Street.
The dollar hit a session peak of 107.53 yen <JPY=> before
easing to 107.44 yen, up half a percent on the day. The euro
rose 1 percent to 157.05 yen <EURJPY=>.
Sterling climbed 0.6 percent to $1.9623 <GBP=>, shaking off
earlier losses suffered after a tame British inflation report
boosted expectations of more Bank of England rate cuts ahead.
Analysts, though, said Buffett's offer to bond insurers did
not signal the end of market turmoil, and many added that it
does little to address underlying credit problems.
"It's pretty much like putting a band-aid on a big wound,"
Sahota said. "The Federal Reserve's proactive and aggressive
easing has been more helpful to the market so far."
The Fed has slashed benchmark interest rates from 5.25
percent to 3 percent since mid-September, with 1.25 percantage
points alone coming during an eight-day span in January.
And the U.S. economy's woes may not be over yet.
Goldman Sachs said on Tuesday that the euro's dip toward
the bottom of the $1.43-$1.50 range that's prevailed since
November was a good buying opportunity, noting that more
negative U.S. economic news could push it to a new record high
above $1.50.
To that end, Wednesday's U.S. retail sales report for
January will be watched for clues about the health of the
American consumer, who accounts for two-thirds of U.S. growth.
A Reuters survey of economists expects to see a 0.2 percent
decline, and a bigger slide would like add to dollar pressure.
But some said the euro would have a hard time extending
gains much further amid growing expectations that the European
Central Bank's next interest rate move will be a cut.
The ECB has held rates at 4 percent since the credit crisis
erupted last summer even as the U.S., British and Canadian
central banks reduced their benchmark borrowing costs.
And last week, ECB President Jean-Claude Trichet said the
euro-zone economy was facing downside growth risks.
While a gauge of German business sentiment on Tuesday beat
expectations, the euro didn't get much traction until Buffett
revealed his bond insurer plan during early New York trade.
"The ECB really did subtly change its tone last week and
they are in the process of turning the ship, if you will," said
Sophia Drossos, senior FX strategist at Morgan Stanley in New
York. "It will take some time -- our sense is they won't be in
a position to cut until April at the earliest -- but there's no
more talk of their raising rates."
(Editing by Chizu Nomiyama)
