* Scramble to safety benefits dollar
* Markets already on edge because of Ireland
* Euro lower as euro zone debt problems in focus
(Adds detail, updates prices)
By Anirban Nag
LONDON, Nov 23 (Reuters) - The dollar rose on Tuesday after
North Korea shelled a South Korean island, adding geopolitical
tension to concerns over Europe's debt crisis and driving
investors to the relative safety of the U.S. currency.
The euro also took a knock after German finance minister
Wolfgang Schaeuble said the single currency was at stake due to
the Irish debt crisis. []
The South Koreans returned fire after the shelling by North
Korea, military and South Korean media reported, exacerbating
the risk aversion gripping global financial markets heading into
the end of the year. []
"Tension in the region has led to a knee-jerk reaction in
currencies and stocks, but they tend not to have an everlasting
impact," said Paul Robson, currency strategist at RBS Global
Banking.
"Focus will shift back to the euro, and we believe euro zone
peripheral issues have some more time to run. Investors will go
after Portugal and then Spain after Ireland is done."
The dollar index <.DXY> was up 0.4 percent at 79.016, but
off its intra-day high of 79.116. The euro was down 0.6 percent
on the day at $1.3535 <EUR=>, after shedding around half a U.S.
cent when the Korean clash was reported.
The dollar was up 0.1 percent against the yen at 83.40 yen
<JPY=>, having risen as high as 83.85 yen. Traders said macro
funds buying the dollar after the shelling ran into robust
offers from Japanese exporters.
The move took the pair briefly above its Ichimoku cloud, a
closely watched Japanese technical indicator, for the first time
in five months at 83.63.
In the United States, the minutes from the Federal Reserve
Open Market Committee's last board meeting on Nov 2 and 3 will
be released.
"The main thing from the FOMC minutes will be how much
support for QE2 was there at the meeting," said Geoffrey Yu,
currency strategist at UBS.
CONFIDENCE IN EURO BRITTLE
Many investors are not convinced that aid to Ireland will
prevent other heavily indebted members of the 16-country bloc
from seeking aid.
Portugal and Spain are seen as the next weakest links.
An official from Portugal's main opposition party said it
would allow passage of the minority Socialist government's 2011
budget in the final vote on Nov. 26. []
But Spain's short-term cost of borrowing almost doubled at a
tender on Tuesday.
Irish Prime Minister Brian Cowen defied pressure to quit,
saying on Monday he would stay in office until parliament passed
a budget on Dec. 7, then call an election. []
Irish and other peripheral government bond yield spreads
widened and the cost of insuring higher-yielding euro zone
sovereign debt against default rose as markets fretted over
whether Ireland's embattled government will get its budget
passed.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Ireland requests international bailout []
Europe debt problems []
Euro zone debt struggle: http://r.reuters.com/hyb65p
Multimedia on euro zone crisis: http://r.reuters.com/hus75h
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
The euro has already lost 5 percent against the greenback
this month, retreating from a nine-month high hit on Nov. 4.
Support for the euro is seen at $1.3446, the Nov. 16 trough,
a break of which could pave the way for a retest of $1.3333, the
August high, which some analysts said would confirm a developing
downtrend for the single currency.
Both the Australian and New Zealand dollars shed ground as
the tension on the Korean peninsula prompted investors to unwind
some long positions built in those high-yielding currencies.
The Australian dollar <AUD=D4> was down 0.8 percent at
$0.9806 while the kiwi <NZD=D4> fell to $0.7652, its lowest
since Nov. 17.
(Additional reporting by Neal Armstrong; Editing by Hugh
Lawson)
