* Dollar slips, Dubai to get funds from Abu Dhabi
* Yen initially sold on position squeeze, recovers losses
* Fed policy meeting coming into focus
By Jamie McGeever and Naomi Tajitsu
LONDON, Dec 14 (Reuters) - The dollar slipped on Monday
after Dubai's announcement it had received help from Abu Dhabi
to repay its debts bolstered risk appetite and eroded some of
the U.S. currency's safe-haven appeal.
The currency market's bent to sell dollars on improved risk
appetite -- global equities bounced on the $10 billion bailout
-- contrasted with last week when strong U.S. economic data
boosted risk sentiment to the benefit of stocks and the dollar.
The dollar index retreated on Monday from its highest in
more than a month hit last week, after Abu Dhabi agreed to bail
out its debt-laden neighbour with $10 billion in aid, easing
worries about a possible debt default by Dubai.
The bailout announcement also triggered selling in the
low-yielding yen. But the initial dollar and yen weakness
fizzled out as the European session progressed, particularly in
the yen as traders cited talk of Japanese repatriation.
The euro's gains were also capped as Dubai's debt issues
underlined fiscal concerns in other countries, including Greece,
whose credit rating was cut last week.
"There's been an improvement in the performance of risky
assets and risky currencies today ... and the mood is more
upbeat," said Standard Chartered FX strategist Rob Minikin.
"There was an initial dollar sell-off in some of the major
crosses, but that's somewhat lost momentum. The sense is that
the dominant theme in recent weeks was one in which credit
jitters outside the U.S. were dollar constructive but that has
unwound a little bit today," he said.
At 1235 GMT the dollar index, a measure of the greenback
against six major currencies, was down 0.2 percent at 76.417
<.DXY>, capped by resistance at the 100-day moving average of
76.691. Last week it hit a near six-week high of 76.726.
The euro was up 0.2 percent at $1.4650, having climbed to
around $1.4685 after Dubai said it had received funding from Abu
Dhabi to help repay $4.1 billion in an Islamic bond maturing on
Monday.
Last month, news that government-controlled holding company
Dubai World might default rattled financial markets and led to a
sell-off in the euro and riskier assets, including the
high-yielding Australian dollar.
The euro barely moved after euro zone employment and
production figures. Late last week, it hit a two-month low of
$1.4586 on the EBS trading platform on the back of strong U.S.
retail sales and consumer sentiment figures.
FED IN FOCUS
The dollar fell 0.6 percent to 88.50 yen, unable to sustain
a jump to around 89 yen after Dubai's announcement. Traders
cited Japanese exporters selling the greenback after its rise.
The retreat in dollar/yen helped to prompt a broad buy-back
in the yen, which recovered from initial selling against
higher-risk currencies, including sterling and the Australian
and New Zealand dollars.
"The market's reaction to the Dubai news was relatively
positive, but there remain question marks relating to the broad
issue of sovereign risk, which will be one of the themes going
into 2010." said Ned Rumpeltin, currency strategist at Nomura.
Traders were also looking ahead to a two-day Federal Reserve
policy meeting, which begins on Tuesday.
The U.S. central bank is likely to keep rates unchanged near
zero, but the focus will be on the accompanying statement and
whether the Fed reiterates a dovish bias and does not fully
acknowledge the recent run of strong data.
The surprisingly strong reading of U.S. consumer data on
Friday, coming on the heels of a lower-than-expected fall in
non-farm payrolls earlier this month, had boosted the dollar.
Such signs of recovery in the U.S. economy have raised some
speculation in the market that the Fed may wind down loose
monetary policy sooner than markets had been expecting.
"We had a one-two punch of the payrolls and the retail sales
data, so maybe the market is getting optimistic about a U.S.
recovery," said Rumpeltin at Nomura.
"But we don't think the market should get ahead of itself
and start to anticipate an early Fed rate rise."
