* U.S. Treasury auctions this week in focus
* Bad bank debt worries used as excuse to sell euros
* North Korea says is ready to fire more missiles
By Rika Otsuka
TOKYO, May 26 (Reuters) - The dollar rose from a five-month
low against a basket of currencies on Tuesday as investors booked
profits on a spike in the euro and other higher-yielding
currencies, while traders awaited U.S. Treasury auctions to test
the strength of investor appetite for dollar assets.
The euro slid against the dollar and the yen after Britain's
Daily Telegraph reported that Germany's financial regulator BaFin
had warned that toxic debt of the country's banks would blow up
"like a grenade" unless they took advantage of government
bad-bank plans to prepare for the next phase of crisis.
The report was not new, however, as the regulator warned last
week that German banks have bad assets of around 200 billion
euros ($280 billion). []
Traders said speculators used the report as an excuse to sell
the European single currency after its jump of about 8 percent in
just a month against the dollar, from $1.30 to $1.40.
"The euro, the Australian dollar and sterling all have risen
to levels where people would feel they have run their course for
now," said Osamu Takashima, chief currency analyst at Bank of
Tokyo-Mitsubishi UFJ. "It's understandable to see profit-taking
on them."
Activity picked up in Asia as U.S. and British financial
markets will resume trading later in the day after a three-day
weekend.
The dollar index <.DXY>, a gauge of the greenback's
performance against six other major currencies, edged up 0.2
percent to 80.156.
The index struck a five-month trough of 79.805 last week when
concern that U.S. government debt may lose its AAA rating
prompted investors to sell the world's reserve currency.
The euro fell to $1.3975 <EUR=>, down from $1.4023 in late
Asian trade on Monday. It rose as high as $1.4051 on trading
platform EBS on Friday, its highest since early January.
The euro was also under pressure a day after the German-based
Ifo think tank's business climate index on Monday fell short of
market expectations, suggesting that any recovery in the euro
zone's biggest economy will take more time. []
The European single currency fell to 132.25 yen <EURJPY=R>
down more than 1 yen from late Asian trade on Monday, as funds
took profits on the euro's sharp gains against the yen in the
past week.
Among higher-yielding currencies, the Australian dollar
dipped 0.4 percent on the day to $0.7786 <AUD=D4>, pulling back
from a near eight-month high of $0.7868 hit last week.
The dollar traded at 94.65 yen <JPY=>, down from 95.10 yen in
the previous day's late Asian trade, edging towards a two-month
low of 93.85 yen on trading platform EBS hit on Friday.
The market reacted calmly after North Korea on Tuesday
accused the United States of being hostile and was reportedly
ready to test-fire more short-range missiles. []
The yen fell broadly the previous day on news that North
Korea had conducted a nuclear test, which was seen as negative
for the currency given Japan's geographical proximity to
Pyongyang.
"In past cases in the beginning the market pays attention but
afterwards, even if the United Nations comes up with a statement,
the market will not pay much attention any more," said Masafumi
Yamamoto, head of FX strategy Japan at Royal Bank of Scotland.
"The basic (market) assumption is that North Korea is not
really thinking of attacking Japan or a U.S. military base or
South Korea, it's just a kind of threat," Yamamoto said.
One focal point in the market this week is the U.S.
Treasury's debt auctions totalling $101 billion. The government
will sell two-year notes today, followed by a five-year auction
on Wednesday and a sale of seven-year notes on Thursday.
"Dollar selling is likely to gather pace if the Treasury
auctions meet only lukewarm demand, causing long-term Treasury
yields to climb," said Yoshihisa Kanzaki, a trader at Shinkin
Central Bank.
"Investors will focus on the fact that higher interest rates
would hamper a recovery in the U.S. housing market and the
broader economy," Kanzaki said.
($1=.7151 Euro)
(Additional reporting by Charlotte Cooper and Aiko Hayashi;
Editing by Joseph Radford)
