Dollar extends gains as investors debate forex data

The dollar rose on Thursday as investors began to react positively to U.S. data, seeing signs of a recovery which would bolster demand for U.S. assets. The dollar was also helped by month-end flows as investors who had been betting against the dollar and dollar-denominated assets were forced to buy to reduce losses.

U.S. weekly jobless claims decreased in the latest period even as continued claims notched a fresh record high, a sign some investors took as stabilization of the labor market. A separate report showed business activity in the U.S. Midwest contracted at a less severe rate than expected in April. "If the U.S. economy starts to show signs of sustained stabilization, the dollar may begin to perform better, though it's probably a bit premature to say this now," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

The euro was last down 0.2 percent at $1.3235 while the dollar was 0.9 percent higher against the yen at 98.33 yen .

A rise in euro zone unemployment to 8.9 percent in March from an upwardly revised 8.7 percent in February underlined the view that the euro zone economy remains weak. Other data showed that euro zone inflation remained at a record low of 0.6 percent year-on-year in April

Moves in the dollar were also being dictated by month-end fixing related flows tied in part to equity-related adjustments.

"The dollar is up because of overall demand for the greenback," Kathy Lien, director of currency research at GFT Forex in New York. "A lot of month-end dollar negative flows are ending as it is the last day of trading" for the month.

Other data showed the weak U.S. job market continued to pressure incomes and spending in March, government data showed on Thursday. A report from the Commerce Department showed consumer spending fell 0.2 percent in March after a 0.4 percent increase in February, initially reported as a 0.2 percent rise. Spending, which accounts for over two-thirds of U.S. economic activity, had also risen in January.

Personal income slipped 0.3 percent after declining 0.2 percent in February, the Commerce Department said. Personal income has declined in five of the last six months.

Savings increased to an annual rate of $455.3 billion. The savings rate climbed to 4.2 percent in March from 4 percent in February.

Inflation was moderate in March, with the personal consumption expenditures price index, excluding food and energy, up 1.8 percent on a year-over-year basis, the same as in February. [ID:nN30506091]

Moves were also exaggerated by thin market conditions ahead of the May Day holiday tomorrow and the start of the Golden Week Holiday in Japan. (Additional reporting by Steven C. Johnson in New York)

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Yen rises as Japanese buy

TOKYO, Feb 9 (Reuters) - The yen rose against the dollar on Monday with demand from Japanese exporters lending support after it earlier hit a one-month low as gains in stock markets pointed to an easing of risk aversion.

The dollar hit a one-month high against the yen earlier as the Japanese currency carried over its weakness from Friday, when U.S. shares rallied even as data showed that U.S. job losses in January were the deepest in 34 years.

"The rise in equities caused risk aversion to wane and triggered selling of the yen," said a trader for a Japanese bank.

But the dollar later shed its gains against the yen due to selling by Japanese exporters, traders said.

The dollar fell 0.3 percent against the yen to 91.73 yen. The dollar earlier rose to 92.42 yen on trading platform EBS, its highest since early January.

In the near term, currencies are seen likely to take their cues from how the stock market reacts to President Barack Obama's financial stability plan, to be outlined by Treasury Secretary Timothy Geithner in a speech at 1600 GMT on Tuesday. The stabilisation steps were initially due to be unveiled on Monday, but the the Obama administration pushed back the announcement as it pressed lawmakers to settle their differences over a huge economic stimulus package.

Market players said the dollar broke above a triangle pattern against the yen on technical charts late last week, suggesting it may have more room to rise.

One possible scenario is for the dollar to rise towards 94.00 yen within a week, but whether that will be the case remains to be seen, said Minoru Shioiri, chief manager of foreign exchange trading for Mitsubishi UFJ Securities. "That is what technical factors suggest, but if you ask whether there are other factors out there that lend credence to that view, or whether this is a situation where people can head openly toward risk-taking, that's difficult," Shioiri said.

Besides the market's reaction to the U.S. financial stabilisation measures, another focal point will be whether there is fund repatriation by Japanese investors, Shioiri said.

Since February is a month when there is a relatively large amount of coupon payments on U.S. Treasuries, there is focus on the potential for dollar selling by Japanese players, he said.

Some $25 billion in coupon payments in U.S. Treasuries are due on Feb. 15, according to U.S. Treasury Department data. In addition, there is $36 billion in maturing coupon securities due that day.

Market players are focusing on whether Japanese institutional investors will try to repatriate overseas assets ahead of their financial year-end book closings at the end of March.

There was little currency reaction to data showing that Japan's current account surplus fell 92.1 percent in December from a year earlier, and that Japan's core private-sector machinery orders fell by a smaller-than-expected 1.7 percent in December.

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