* Focus on U.S. government bank bailout plan
* U.S. investor, fund repatriation behind Tuesday's surge
* Markets closed in China, Singapore, Malaysia and Indonesia
By Rika Otsuka
TOKYO, Oct 1 (Reuters) - The dollar dipped against the euro
on Wednesday a day after it surged on quarter-end deals and on
hopes that U.S. lawmakers could still reach agreement to revive a
$700 billion bank bailout plan to stem the credit crisis.
Light selling hurt the dollar as investors thought the
previous day's rally was exaggerated, traders said.
Activity was light in Asia as markets in China, Singapore and
many other parts of the region were closed for national holidays.
The dollar posted its biggest jump against the euro on
Tuesday since the introduction of the single currency in 1999 as
investors bet Washington would manage to salvage the package
after its shock rejection by the House of Representatives on
Monday.
"Investors have been reacting too strongly to the situation
in Europe while being too optimistic about the United States,"
said Hideki Hayashi, chief economist at Shinko Securities.
Traders also said the previous day's hefty gains in the
dollar were partly explained by a dollar shortage at some
institutions before the end of the July-September quarter,
repatriation of overseas assets by U.S. investors and dollar
demand from hedge funds facing redemption.
"If people can't fund themselves through the money market or
swaps, they have to go out and buy dollars. That's what we've
descended into," said Gerrard Katz, head of North Asia currency
trading at Standard Chartered in Hong Kong.
The euro edged up 0.1 percent from late U.S. trade to $1.4106
<EUR=>.
The dollar dipped 0.2 percent against the yen to 105.88 yen
<JPY=>. The U.S. currency staged a sharp rebound on Tuesday from
a four-month low of 103.50 yen hit in early trade.
Adding to a cautious feeling towards the dollar was a slide
in U.S. stock futures <SPc1> during Asian trade.
The euro was down 0.1 percent at 149.38 yen <EURJPY=>.
On Tuesday, the euro plunged 2.4 percent against the dollar
after news of another bank bailout in Europe worsened fears about
widening fallout from the credit crisis.
Banks in Britain, Belgium, Russia, Iceland and the United
States have been rescued by authorities this week, prompting huge
cash injections into the global banking system by central banks
in an attempt to relieve frozen money markets.
But interbank rates stayed high, showing banks are still
scrambling for dollars even at the start of a new quarter.
Traders and analysts said the market's focal point remains
whether Congress will be able to pass a package to buy toxic
assets from struggling banks in an effort to revitalise strained
lending markets.
U.S. House Republican leader John Boehner backs a revised
financial rescue plan and believes Congress should pass it, his
spokesman said on Tuesday. The revised plan includes increasing
federal coverage of bank deposits to $250,000 from $100,000.
[]
"While the dollar lacks clear direction, investors are likely
to be moved between hope and despair by developments in
Washington," said a senior trader at a Japanese brokerage.
The Bank of Japan's tankan quarterly survey showed on
Wednesday that business sentiment has turned pessimistic for the
first time in five years, a sign that a global slowdown and
financial turmoil were taking a toll as the economy teeters on
the brink of recession. []
The market showed a muted reaction to the tankan as the
outcome was mostly in line with expectations.
(Additional reporting by Eric Burroughs; Editing by Michael
Watson
