* Dollar index claws back after hitting 12-wk low
* Euro relinquishes gains vs dollar on EFSF uncertainty
* Dollar remains sluggish, used to fund risky positions
(Reledes, adds quotes, details)
By Naomi Tajitsu
LONDON, Feb 2 (Reuters) - The dollar clawed back some losses
while the euro slipped on Wednesday after an apparent lack of
consensus about a euro zone rescue fund highlighted ongoing
uncertainty about how to solve the region's debt problems.
Comments from a German government source that Berlin opposed
the EFSF rescue fund buying bonds from euro zone countries
helped to pull the euro back from a near three-month high hit
against the dollar in earlier trade. []
A ratings downgrade of Irish government debt by ratings
agency Standard and Poor's also underlined fundamental weakness
in some euro zone countries, prompting short-term speculators to
sell the single currency. []
"The euro is selling off further on this," said a trader in
London, referring to Germany's resistance to the bond buying.
While this helped the dollar to recover from a 12-week low
hit against a currency basket in early trade, it remained on the
back foot after solid manufacturing data this week, low U.S.
yields and stimulative U.S. monetary policy pushed investors
towards riskier assets.
"The greenback is suffering on the back of the Fed's ultra
loose monetary policy and is being used as a funding currency as
the markets load up on risky assets," said Michael Hewson,
analyst at CMC Markets.
The dollar index <.DXY> <=USD> was flat on the day at
77.100, recovering from a slide to 76.881, its lowest since
early November. Its fall had stalled above significant trendline
support from the all-time lows hit in March 2008 at 76.50.
Data on Tuesday showed the U.S. manufacturing sector grew
at its fastest pace last month since 2004.
But unlike in 2004, when the Federal Reserve started pushing
up interest rates, the U.S. central bank is still committed to a
stimulative policy and a Fed official said another round of bond
purchases could be discussed at the Fed's next policy meeting in
mid-March if the recovery flags. []
The euro <EUR=> slipped 0.2 percent to a session low around
$1.3790, retreating after climbing to $1.3862, its highest since
early November.
Next key resistance was the 76.4 percent retracement of the
euro's November to January fall around $1.3950, coinciding with
the 200-week moving average at $1.3956.
Overall, the dollar suffered broadly, hitting a three-month
low versus sterling <GBP=D4> on upbeat UK data and hawkish
central bank comments, and hovered near a record low versus the
Swiss franc <CHF=>.
Against the yen, it was at 81.50 yen <JPY=>, not far from
around 81.30 yen hit in earlier trade, roughly matching a
one-month low hit the previous day.
Markets will focus on U.S. ADP employment data for January
at 1315 GMT for a steer on the more significant U.S. non-farm
payroll report on Friday.
EURO BUOYED
Euro losses were limited as it continued to be supported on
rising expectations that the European Central Bank will be well
ahead of its U.S. counterpart in raising rates.
ECB President Jean-Claude Trichet is expected to give more
warnings on inflation at a news conference on Thursday, after
euro zone inflation data this week was higher than forecast.
Trichet's news conference will be followed by Federal
Reserve Chairman Ben Bernanke's speech on the same day, which
could highlight the U.S. central bank's relative dovishness
compared with the ECB.
Despite the euro's near year rally on rate speculation, some
analysts say it will require new impetus to extend its rally.
ING analysts argue the two-year euro swap rate <EURAB6E2Y=>
-- the rate at which corporates hedge against interest rate risk
-- has limited room to rise after pushing above 2 percent, 100
basis points over the policy rate, which they say is "extreme".
"EUR/USD may have come about as far as it can on the ECB
story alone, and will need an alternative catalyst to punch it
through resistance in the $1.3900/1.4000 area," analyst Chris
Turner said in a note.
(Additional reporting by Neal Armstrong; Editing by Ron Askew)
