* Dollar near record low vs euro, dogged by financial worries
* Japan retail investment keeps yen weak on crosses
* Market players watching whether euro can top 170 yen
By Chikako Mogi
TOKYO, July 22 (Reuters) - The dollar was steady on Tuesday
after falling near a record low against the euro the previous day
as investors believe the worst of the problems in the U.S.
financial system are not yet over.
While the dollar has recovered somewhat after better results
than expected from big financial institutions such as Citigroup
<C.N>, JPMorgan Chase <JPM.N> and Bank of America <BAC.N>,
investors are awaiting more earnings reports this week.
The euro may gain against the yen as Japanese investors ship
more funds into higher-yielding currencies for better returns,
with traders watching whether the single currency tops Monday's
record high and reaches the 170 yen level.
With no major data or events scheduled, major currencies were
likely to stay confined to narrow ranges as many market players
kept to the sidelines, traders and analysts said.
"The big bout of dollar weakness is behind us, but there is
still mileage here, mainly coming from the fact that there is
still disappointing data to work through in the United States
before we have a rebound at the end of this year," said Jan
Lambregts, head of research for Asia at Rabobank.
The dollar inched up 0.1 percent to 106.50 yen <JPY=>.
Traders cited Japanese exporter selling between 106.50 and 106.80
yen, while near-term support was seen around 106.10 yen.
The euro was little changed at $1.5915 <EUR=>. It was also
nearly flat against the yen at 169.49 <EURJPY=> after rising to
the day's high near 169.70 yen, which was not far from the record
high of 169.91 yen hit on Monday.
With the economy suffering as the credit crisis hits the
housing market and banks, expectations for the Federal Reserve to
raise interest rates before the end of the year to curb inflation
pressures are fading quickly, hurting the dollar.
Compared with the Fed's 2 percent policy target, the European
Central Bank's 4.25 percent rate keeps the euro attractive,
traders said.
"The dollar's direction will be dictated by the euro, which
has more scope for a rise," said a senior dealer at a Japanese
trading firm.
"The euro may also benefit from an ongoing outflow of funds
from Japan as Japanese investor appetite for higher-yielding
overseas assets remains solid," he said.
The market's focus remains on a rescue plan for troubled U.S.
mortgage finance giants Fannie Mae <FNM.N> and Freddie Mac
<FRE.N>. U.S. Treasury Secretary Henry Paulson said on Sunday he
was optimistic that Congress would approve the government's
request for authority to shore them up.
The White House said on Monday it hoped for progress on the
rescue plan by the end of this week, but reiterated a veto threat
over a provision that Congress looks likely to include in the
bill. []
Troubles at Freddie Mac and Fannie Mae may further undermine
foreign investor confidence in U.S. agency bonds, encouraging
investors such as those in China and the Middle East to shift
funds from the dollar into the euro, some traders said.
"The dollar has thin support as players are cautious about
selling after restrictions on short selling and warnings of
intervention," said the trading firm dealer.
Traders said the dollar could face renewed selling if there
were signs the passage of the bill would be blocked or delayed.
On Monday, Paulson said in an interview with CNBC that
confidence in U.S. capital markets and the U.S. economy was the
most important thing to support a strong dollar. [].
Paulson is scheduled to speak later in the day.
(Additional reporting by Shinichi Saoshiro; Editing by Edwina
Gibbs)
