By Naomi Tajitsu
TOKYO, Feb 13 (Reuters) - The dollar slipped on Wednesday
ahead of U.S. retail sales figures that were expected to show
more economic weakness, while repatriation flows linked to U.S.
Treasuries also put downward pressure on the U.S. currency.
The yen inched up as Tokyo stocks trimmed early gains due to
weaker Chinese equities, cooling demand for risky assets and
prompting investors to unwind carry trades, in which they sell
the low-yielding Japanese currency for assets in high yielders.
Economists polled by Reuters estimate that retail sales
slipped 0.2 percent in January after a 0.4 percent decline in
December, but rose 0.2 percent with auto transactions excluded.
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"A somewhat weaker number is already factored in," said
Joseph Kraft, managing director of Japanese capital markets for
Dresdner Kleinwort in Tokyo.
"The question is how much weaker it's going to be," he said.
Market participants say that a downside surprise in the
figures may bolster the argument that the slowdown in U.S.
growth may yet continue, which would further fuel the belief
that the Federal Reserve will cut rates next month to avoid a
recession.
The dollar <JPY=> slipped 0.2 percent to 107.05 yen, also as
some Japanese investors sold the U.S. currency to repatriate
funds linked to maturing U.S. Treasuries and Treasuries-related
coupons, which come up for payment later in the week.
The U.S. Treasury will make $26 billion in coupon payments
on Friday, while $54 billion in Treasuries will mature on the
same day.
The Nikkei stocks average ended 0.4 percent higher, but
pulled back from early gains as Shanghai stocks <> slid
more than 1.5 percent as investors returning from a week-long
break for the Lunar New Year holiday sold shares on worries
about global economic weakness.
Stock markets often influence currency swings, since
investors see the equity market as a barometer of risk demand. A
rise in equities shows stronger risk appetite, which can prompt
investors to sell the yen in carry trades, while weaker shares
can trigger short covering in the low-yielding currency.
The euro <EUR=> traded 0.1 percent lower at $1.4570, not far
from the day's low of $1.4560.
The single currency was pressured after a surprisingly
strong reading of German business sentiment on Tuesday did
little to alter speculation that the European Central Bank may
cut interest rates from 4.0 percent in the next few months.
The euro <EURJPY=R> slipped 0.1 percent to 156.25 yen,
having fallen to the day's low around 156.05 yen.
BUFFETT PLAN
Dollar losses were limited after billionaire investor Warren
Buffett said on Tuesday that he had offered to reinsure $800
billion of municipal debt guaranteed by bond insurers, easing
some worries about further fallout from the credit crisis.
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The high-profile investor said he had extended the offer to
MBIA, Ambac and FGIC Corp, but added that so far one of the
three had rebuffed him.
Analysts said Buffett's plan would have limited lasting
impact on the stocks and bond market, but some said that it was
a good start to resuscitating the health of bond insurers, the
latest casualty of the credit turmoil.
"I know some people see Buffett's plan with scepticism,"
said Tsutomu Soma, senior manager at the foreign assets
department at Okasan Securities. "But his offer is not a bad
factor for the dollar at all."
Investors also awaited testimony by Federal Reserve Chairman
Ben Bernanke on Thursday, when he will speak on the state of the
U.S. economy and financial markets before the Senate Banking
Committee.
The Fed slashed interest rates by a hefty 125 basis points
last month to 3.0 percent, the lowest in nearly three years, to
prevent the world's biggest economy from falling into a
recession.
(Additional reporting by Rika Otsuka)
