* Dollar gains as US bank plan lifts sentiment
* Sterling/dollar hits 6-wk high on UK inflation surprise
* Euro pressured as policy-makers hint at euro rate cuts
(Adds comment, updates prices, changes byline, changes
dateline, previous LONDON)
By Nick Olivari
NEW YORK, March 24 (Reuters) - The dollar rose against both
the yen and the euro on Tuesday as investors concluded a U.S.
plan to remove bad loans from banks' balance sheets would do a
lot to help the U.S. economy recover sooner than others.
The plan detailed on Monday by U.S. Treasury Secretary
Timothy Geithner caused the dollar to halt last week's slide,
prompted as the Federal Reserve announced its massive balance
sheet expansion would include buying government debt.
[]
Sterling posted strong gains, however, hitting a six-week
high against the dollar after British data showed an unexpected
rise in consumer price inflation.
The euro was also under pressure as euro zone policymakers
suggested that interest rates in the region could fall further,
just as data showed manufacturing and services sector activity
continued to contract significantly.
Investors are looking past current uncertainty and toward a
U.S. economic recovery, said Matt Esteve, a foreign exchange
trader at Tempus Consulting in Washington.
"In the medium to long term, the plan is dollar beneficial
as the economy starts to grow," Esteve said.
In early New York trade, the dollar was up 1.2 percent on
the day at 98.22 yen <JPY=>. The euro rose 0.7 percent to
133.23 yen <EURJPY=EBS>, having earlier struck 134.50 yen on
trading platform EBS, its highest level since October.
The yen remained under pressure as ongoing worries that the
currency is overvalued combined with concerns about Japan's
weak economy continue to erode the unit's safe haven status.
The euro fell 0.5 percent against the dollar to $1.3559
<EUR=EBS>, down from the two and a half month peak of $1.3739
touched last week on EBS.
Markets will now be watching out for Fed Chairman Ben
Bernanke's and U.S. Treasury Secretary Geithner's testimony
before a Congressional committee at 10 a.m. (1400 GMT).
UK INFLATION SURPRISE
Sterling rose to a six-week high of $1.4778 <GBP=> after
data showed British annual CPI inflation rose to 3.2 percent in
February from 3.0 percent in January, confounding forecasts for
a drop to 2.6 percent and staying above the central bank's
two-percent target [].
State Street currency strategist Lee Ferridge said in
London the knee-jerk reaction was to buy sterling, but there
are lingering concerns about the Bank of England embarking on a
quantitative easing policy at a time of high inflation.
"This is not a good backdrop for a currency," he said.
Meanwhile, euro zone policy-makers continued to suggest
that rates in the region will fall further.
European Central Bank governing council member Erkki
Liikanen said the central bank has not used up all its "room
for manoeuvre" on interest rates [].
The news followed comments overnight from ECB President
Jean-Claude Trichet again said interest rates could be cut to
help kickstart the economy. [].
"The ECB has room to cut rates, which may undermine the
euro slightly, but it's more a dollar story than the euro,"
said Carole Lualhere, currency strategist at Societe Generale
in Paris.
On top of that, there was more negative news on the euro
zone economy, with key gauges of euro zone services and
manufacturing showing activity in the sectors remaining weak as
firms slashed jobs and prices [].
(Additional reporting by Jessica Mortimer in London)
(Reporting by Nick Olivari; Editing by Chizu Nomiyama)
