By Naomi Tajitsu
TOKYO, March 5 (Reuters) - The dollar was little changed on
Wednesday, holding slight gains made against the yen on a partial
recovery in U.S. stocks, while investors awaited economic data
that may show the United States is edging closer to recession.
Such a view kept the dollar broadly weak, hovering near a
record low against the euro and a three-year trough versus the
yen ahead of the Institute of Supply Management's index of
service sector activity due later in the day.
Traders said they were also awaiting U.S. payrolls figures
due on Friday, the most anticipated release of the week. Weak
data could support the view that aggressive interest rate cuts
may be needed to lift the struggling U.S. economy.
"The market is taking a break after the dollar's fall late
last week and into this week, and before upcoming payrolls," said
Hiroshi Yoshida, forex manager at Shinkin Central Bank.
The dollar has plunged roughly 5 percent against the yen in
the past week or so while the euro has climbed around 3.5 percent
versus the U.S. currency, and market participants see more dollar
losses on the way.
The dollar was steady around 103.40 yen <JPY=>, holding gains
after receiving a boost from U.S. stocks on Tuesday on a report
that a deal to rescue ailing bond insurer Ambac Financial Group
<ABK.N> was near.
Still, the U.S. currency remained near a three-year low of
102.60 yen hit earlier in the week, and was at 73.710 against a
basket of major currencies <.DXY>, near its lowest level ever.
The euro <EUR=> traded around $1.5200, inching down from
levels in late New York trade, but stayed close to a record high
around $1.5275 hit on Monday.
Against the yen <EURJPY=R>, the single European currency was
steady at 157.16 yen.
FOCUS ON DATA
On the U.S. data front, the ISM's non-manufacturing index due
at 1500 GMT is expected to produce a reading of 47.0 in February,
above January's 44.6 but still below the level of 50 that
separates expansion from contraction.
A second month of shrinkage in the index would lend
considerable support to analysts who say the United States is
already in recession and the economy is contracting.
According to a history of the index's composite gauge, the
non-manufacturing component hit a record low in January, which
had initially sparked fears that the U.S. economy was already in
a recession.
"If we see a weak ISM reading and then weak jobs figures
later in the week, we could see a push in the dollar/yen towards
100 yen," said Hideki Amikura, a forex manager at Nomura Trust
and Banking.
A jobs report by ADP Employers Services due at 1315 GMT is
considered a prelude to crucial payrolls due on Friday, and
traders said that a weak reading later in the day could trigger
more dollar selling.
"I think we are still in a phase of dollar selling and that
the market will be looking for factors that could reinforce such
moves," said a trader for a North American bank in Tokyo.
Also due on Wednesday are a reading on U.S. factory orders
and the Federal Reserve's Beige Book, which market participants
will pore over for clues on how much pain the economy is in.
Many in the market expect that U.S. Treasury Secretary Henry
Paulson's insistence on Tuesday that nothing had changed in the
government's policy towards the dollar was having a limited
impact on the U.S. currency. []
Rather, analysts said that Fed Chairman Ben Bernanke's
statement last week that a weak dollar was helping to shrink the
U.S. trade deficit was holding more sway in the market, as
investors took the comment as an embrace of dollar weakness.
"Comments by Paulson and Bernanke show that the U.S.
government and the Fed have opposing views about where the dollar
should be trading," said Amikura at Nomura Trust and Banking.
(Additional reporting by Masayuki Kitano)
