* Dollar near 6-week low on index but edges up on majors
* Cross/yen retreats after overextension
* Bernanke: as recovery takes hold, will need to tighten
* Fed exit strategy in focus; players expect few surprises
By Charlotte Cooper
TOKYO, July 21 (Reuters) - The dollar inched off the steepest
of the week's lows on Tuesday as the market awaited testimony by
Federal Reserve chairman Ben Bernanke, while the yen bounced from
a drop in holiday-hit trade the day before.
Bernanke, writing in the Wall Street Journal ahead of two
days of congressional testimony, said the U.S. central bank would
need to rein in accommodative measures to prevent inflation as
recovery took hold.
But he said accomodative policies were likely to be warranted
for a while. []
Traders and analysts said Bernanke did not sound anxious
about removing excess stimulus from the system.
"The article is laying out the groundwork that there's not
going to be any immediate rate hikes, which is no news, and just
outlining a few options the Fed has when the time is right to
take liquidity out of the market," a senior trader at a European
bank in Hong Kong said.
"But the key thing is the time's not right."
The euro slipped 0.2 percent on the day to $1.4204 <EUR=>,
after touching a six-week peak at $1.4250 on trading platform EBS
the previous day.
The dollar also edged up from its lowest in a month against
the Australian dollar and a three-week low on sterling set the
previous day and it hovered not far above a six-week low of
78.799 <.DXY> against a basket of currencies.
Bernanke will start his twice-yearly testimony on the
economic outlook and monetary policy before the House Financial
Services Committee at 1400 GMT and UBS analysts wrote in a client
note that he was likely to make clear there is no rush to
tighten.
"Expectations of exiting too early could undermine U.S.
growth prospects and the dollar, but under-delivering would keep
inflation concerns elevated and would also weigh on the dollar,"
they wrote.
After the Journal article, market players expected few
surprises from the testimony, though it is a big market focus.
"With the U.S. jobs situation expected to worsen further,
what they can say at this point is very limited," said Hideki
Amikura, deputy general manager of forex trading at Nomura Trust
and Banking.
RISK CURRENCIES SLIP
The yen lost about 1 percent on the euro on Monday when Tokyo
markets were closed, touching its lowest in two weeks at 134.76
yen per euro.
Currency market players have been watching stock markets and
U.S. corporate earnings as a gauge of how quickly recovery may
materialise and the S&P 500 hit an eight-month closing high on
Monday, with shares buoyed after lender CIT Group <CIT.N> was
thrown a lifeline to avoid bankruptcy and brokers upgraded
technology bellwethers. []
"The market got carried away with putting on risk positions
yesterday at not great levels," the senior trader said.
"Today people are selling out some of the yen crosses and
that's putting a bit of pressure on dollar/yen."
The dollar, which hit its highest just over a week on Monday
at 94.80 yen, slipped 0.3 percent to 93.94 yen <JPY=>.
The euro fell 0.5 percent on the day to 133.46 yen
<EURJPY=R>.
Other yen pairs also fell. Sterling shed 0.6 percent to
155.03 yen <GBPJPY=R> and the New Zealand dollar dropped 0.7
percent to 61.41 yen <NZDJPY=R>.
The Australian dollar, which hit its highest in more than a
month at $0.8180 <AUD=D4> on Monday, was down 0.4 percent on the
day at $0.8125.
It also slipped 0.7 percent to 76.31 yen <AUDJPY=R>, after
touching a two-week high of 77.08 yen on Monday.
The losses came before minutes from the Reserve Bank of
Australia showed it grew more optimistic on the outlook for
growth when it left rates steady at its meeting in July.
The RBA still saw scope for further easing, however, should
an expected recovery not materialise, but investors appeared to
shrug the minutes off as a repeat of its earlier statements.
The Bank of Japan has taken measures to shore up financial
markets in the face of the global credit crunch and extended some
steps at its most recent meeting in July.
Minutes of its mid-June meeting released on Tuesday, however,
showed one board member said it should start looking at ways to
end its unconventional policy steps, although the yen largely
took the news in stride. [].
The Japanese currency also held steady after news that
cabinet members had signed off on Prime Minister Taro Aso's plan
to dissolve parliament's lower house for an election on Aug. 30,
as polls show his ruling party in danger of a historic defeat.
Analysts said there were plenty of questions over how the
opposition Democrats, leading in the polls, would fund their
planned social programmes.
"But for now, the short-term message is that the market
really wants change," said Noritsugu Hirakawa, a strategist at
Okasan Securities.
(Additional reporting by Aiko Hayashi; Editing by Edwina Gibbs)
