* Japanese demand for yield helps dollar trim losses
* But dollar seen under pressure on economy, credit worries
* Kiwi jumps 1 pct vs yen on yield-demand
* Euro near upper end of recent range against dollar
By Rika Otsuka
TOKYO, June 27 (Reuters) - The dollar edged up on Friday
thanks to demand from Japanese investors seeking higher yields, a
day after taking a hit from a sell-off in U.S. shares and renewed
worries about the health of major financial firms.
A wave of buying from Japanese importers, mutual funds and
margin traders gave a boost to the dollar and higher-yielding
currencies like the New Zealand dollar, which had tumbled on
Thursday along with the 3 percent drop on Wall Street.
The demand from Japanese players also prompted some traders
to cover short positions in the dollar, even as many market
players are looking for the U.S. currency to potentially drop
back near a record low against the euro.
"Most market players are wanting to sell the dollar if there
is a chance," said Tsutomu Soma, senior manager of foreign assets
at Okasan Securities. "The active buyers of the dollar are
Japanese importers and mutual funds at the moment."
The slump in U.S. shares and the surge in oil prices to a
record high above $140 a barrel added to the gloom over the
dollar, while investors were also spooked by Goldman Sachs
forecasting that Citigroup <C.N> would write down another $9
billion of losses.
The market shrugged off a slew of Japanese data showing core
consumer inflation hitting a decade-high in May, household
spending falling but industrial output rebounding. []
The numbers did not alter the view that the economy is
struggling and the Bank of Japan is likely to keep rates steady
at 0.5 percent for a while.
Expectations for steady BOJ rates have given a boost to a
broad range of currencies against the yen, with the euro reaching
a record peak near 170 yen this week and the Swiss franc hitting
a 17-year high.
The dollar rose 0.2 percent against the yen to 107.02 yen
<JPY=>, recovering from a low around 106.65 yen in early trading
on Friday despite the Nikkei share average losing 2 percent to a
two-month low. []
The low-yielding yen may be benefiting from risk aversion and
unwinding of carry trades, but expectations for rising overseas
interest rates to combat inflation pressures will likely keep the
yen weak against higher-yielding currencies, traders said.
High oil and commodities prices were underpinning Japanese
importers' appetite for the dollar, helping put a floor under the
dollar against the Japanese currency, traders said.
The New Zealand dollar rallied 1 percent to near 81.50 yen
<NZDJPY=R> after having dropped 1.5 percent on Thursday when the
sell-off in stocks prompted market players to cut back on carry
trades.
U.S. stocks took a hit after Goldman Sachs urged investors to
sell bank and automaker stocks. General Motors' shares sank to a
53-year low. []
The euro eased 0.1 percent to $1.5727 <EUR=> on
profit-taking, after rising to around $1.5770 on Thursday, its
highest in nearly three weeks.
The euro was near the upper end of a $1.5285-$1.5844 range
that has held for about two months, and a break above the range
could boost the euro towards $1.60, especially with the European
Central Bank likely to raise rates to 4.25 percent next week,
traders said.
Against the yen, the euro inched up 0.15 percent at 168.47
yen <EURJPY=> but was off a record high of 169.47 yen hit the
previous day.
While worries about more write-downs in second-quarter
results from U.S. financial institutions were undermining the
dollar, credit problems were also hitting the European financial
sector, putting the single currency in a dilemma, said a senior
trader at a Japanese trading firm.
"The ECB is set to boost interest rates to fight inflation,
but higher interest rates would spell more trouble for European
financial institutions exposed to the credit market," he said.
"There is no safe currency. Players must determine whether
credit deterioration will become even more widespread or remain
contained," he said.
(Additional reporting by Chikako Mogi; Editing by Hugh Lawson)
