* Dollar hits 7-week high of 108.48 yen on lower oil
* Wall Street rally also seen supporting dollar
* Crude oil stuck near 3-month low of $118 per barrel
By Shinichi Saoshiro
TOKYO, Aug 6 (Reuters) - The dollar struck a seven-week high
against the yen on Wednesday, supported by sliding oil prices
that helped offset some disappointment from the Federal Reserve's
signal that interest rates would be kept on hold in coming
months.
The Fed kept rates at 2 percent as widely expected, with
Dallas Fed President Richard Fisher the sole policymaker
dissenting in favour of a rate hike, contrary to expectations
that one other official might join him. []
With the Fed highlighting both the risks to growth and its
"significant concern" on inflation, a Reuters poll found most
Wall Street bond dealers expect the central bank to keep rates on
hold into 2009. []
Analysts said oil's tumble to a three-month low of $118 a
barrel has been the main factor driving the dollar's broad
rebound by soothing concerns about the drag of steep energy
prices on the struggling U.S. economy. Oil slipped slightly to
$118.54 <CLc1> in Asia trade.
Mounting evidence that the economic gloom is spreading around
the world has also hurt other major currencies where central
banks are expected to respond by cutting interest rates, helping
the dollar stand out by default.
"It will be hard to dislodge the dollar from these levels,"
said Junya Tanase, forex strategist at JPMorgan Chase.
"But note that the dollar's strength is not owed to the U.S.
economy's robustness, but rather due to the fact that other major
economies are faring worse. Solid U.S. macro fundamentals will be
necessary for the dollar to retain long-term support," he said.
A sharp rise in Wall Street shares was also a positive for
the dollar, traders said. Asian equity markets took heart from
the solid gains, with Japan's Nikkei average <> jumping 2.6
percent.
The dollar was unchanged from late New York trade at 108.28
yen <JPY=> after touching a seven-week high of 108.48 yen on
trading platform EBS.
Traders say the dollar is on track to test key resistance at
108.60 yen, though they expect selling by Japanese exporters
leaving orders to repatriate funds before Japan's "obon" summer
holidays to slow the greenback's ascent.
The ICE Futures dollar index, which measures the currency's
performance against a basket of six currencies, fell 0.2 percent
to 73.771 <.DXY>, down from a seven-week peak of 73.99.
The euro rose 0.3 percent to $1.5495 <EUR=> after hitting a
seven-week low of $1.5445 on Tuesday. The euro may benefit in the
short term as market players cover short positions before
Thursday's European Central Bank meeting, traders said.
The ECB is expected to stand pat on rates and retain a
neutral bias, but analysts said a recent deterioration in
economic conditions will make it increasingly difficult for the
central bank to retain such a stance going forward.
The Australian dollar gained 0.2 percent to $0.9182 <AUD=D4>,
pausing from its slump to a four-month low of $0.9132 on Tuesday
after the Reserve Bank of Australia kept rates unchanged at 7.25
percent but flagged an upcoming easing.
But traders said the Aussie is likely to remain under
downward pressure due to the recent slide in commodity prices and
the prospect of aggressive interest rate cuts.
Money market futures are pricing in a 30 percent chance the
RBA will slash rates by a half-point at its September meeting.
