* Dollar recovers from 14-month low vs currency basket
* Euro fails to break $1.50, drops below $1.49
* Canada keeps rates steady, U.S. dollar soars vs loonie
* Official concern about dollar weakness remains high
(Recasts, updates prices, adds comment)
By Steven C. Johnson
NEW YORK, Oct 20 (Reuters) - The dollar rebounded on
Tuesday from a 14-month low against a basket of currencies as
policymakers in Europe and Asia remarked on its decline and
options-related buying kept it from pushing though $1.50 per
euro and 90 yen.
Concern about U.S. currency weakness also prompted the Bank
of Canada to leave interest rates at record lows, driving the
greenback up 2 percent against its Canadian counterpart.
Wall Street also fell as weak U.S. inflation and housing
data offset strong quarterly earnings, denting investor
appetite to sell the low-yielding dollar for higher-yielding
currencies more closely correlated with economic recovery. For
more on U.S. data, see []; for stocks see [].
The dollar has been under sustained pressure this year as
investors brace for record low U.S. interest rates to last well
into 2010 and questions mount about its status as the world's
main reserve currency.
"The market was long overdue for a correction, but we'll
have to wait a few days to see if there's any follow-through
from this," said Steven Butler, head of FX trading at Scotia
Capital in Toronto. "If the euro gets back to $1.48, that's
probably still an opportunity to buy it at better levels."
An index that measures the dollar against six other major
currencies recovered from a 14-month low at 75.103 and was last
up 0.3 percent at 75.740 <.DXY>. The euro, the biggest
component in that basket, was off 0.4 percent at $1.4899 <EUR=>
after failing to take out options barriers at $1.50. It earlier
hit a 14-month high of $1.4994.
Earlier, the greenback fell to 90.08 yen but later rallied
above 91 yen. It was last up 0.3 percent at 90.83 yen <JPY=>.
The U.S. dollar rose more than 2 percent against the
Canadian dollar to C$1.0526 <CAD=> after the Bank of Canada
kept interest rates at 0.25 percent and said Canadian dollar
strength "more than fully offset" favorable economic
developments. []
The dollar fell to a 15-month low near C$1.02 last week.
NERVOUS POLICYMAKERS
Recent dollar weakness has also unnerved European and Asian
officials, who fear their own currency strength will undermine
economic recovery. Henri Guaino, a top adviser to French
President Nicolas Sarkozy, on Tuesday said a euro at $1.50 is a
"disaster" for European industry and the economy.
There are also growing signs that China is concerned about
the domestic implications of its yuan currency peg. The yuan
rose against the dollar in the non-deliverable forwards market
after Market News International quoted an unnamed Chinese
government source calling for a reversal of the dollar slide.
In Brazil, the greenback rose 2.2 percent to 1.7560 reais
<BRL=> after Brazil's government announced plans to tax
overseas fixed-income and stock investment to stem recent
currency strength.
But until the market hears stronger rhetoric from the likes
of European Central Bank President Jean-Claude Trichet, low
U.S. rates coupled with rising asset and commodity prices will
probably continue to weigh on the dollar, analysts say.
"It's one thing to say you want the dollar to stop
weakening, it's another to put your money where your mouth is,"
said Peter Frank, senior strategist at Societe Generale in
London. "The market isn't there yet, and won't take notice
until it hears this kind of commentary more and from
higher-ranking officials."
The Australian dollar climbed as far as $0.9310 <AUD=>
after minutes from the Oct. 6 Reserve Bank of Australia meeting
said it may be imprudent to keep rates very low.
[] Later it retreated and fell 0.9 percent to
$0.9194 amid general dollar buying.
(Additional reporting by Jamie McGeever in London; Editing by
James Dalgleish)
