* Dollar dips vs euro as Dubai gets lifeline
* Sovereign risk issues still causing concern in market
* Yen initially sold on position squeeze, recovers losses
* Fed policy meeting coming into focus
(Recasts, updates prices, adds comment)
NEW YORK, Dec 14 (Reuters) - The euro edged up against the
dollar on Monday as Abu Dhabi's decision to throw neighboring
emirate Dubai a $10 billion lifeline to repay debts slowed
safe-haven buying that boosted the U.S. currency last week.
Abu Dhabi's move prompted investors to sell the dollar and
buy stocks on improved risk appetite, even as lingering
concerns over debt woes outside Dubai capped euro gains.
The dollar's fall was in contrast to last week, when strong
U.S. economic data boosted risk-taking, to the benefit of
stocks and the dollar.
Analysts cautioned however, not to read too much into
Monday's market gyrations, with any hint the U.S. Federal
Reserve will hike interest rates sooner rather than later,
likely to send the dollar higher.
The Federal Reserve meets later this week and may give
clues on how it intends to unwind loose monetary policy.
"Abu Dhabi helped risk-taking overnight, and that hurt the
dollar, but we're at an interesting point heading into the Fed
meeting," said Dan Cook, senior analyst at IG Markets in
Chicago.
"(Fed Chairman Ben) Bernanke has said rates will stay low,
but people are starting to think the Fed at some point will
have to consider raising them."
The Fed isn't expected to change rates from their current
level near zero on Wednesday, but Cook said any suggestion that
leaves markets thinking a rate hike could come sooner than
mid-year would likely lead to a dollar rally.
While the dollar has a safe-haven appeal, it also gains on
expectations of higher U.S. interest rates that boost the value
of dollar-based assets.
The euro rose 0.2 percent to $1.4650 <EUR=>, having climbed
to $1.4685 after Dubai said it had received funding to help
repay $4.1 billion in an Islamic bond maturing on Monday. Last
week it hit a two-month low on the back of strong U.S.
consumer data <EUR=>.
Last week, worries about excessive debt in Greece, which
had its sovereign credit rating cut by Fitch, weighed on the
euro, and analysts said these worries had not gone away.
"The market's reaction to the Dubai news was relatively
positive, but there remain question marks relating to the broad
issue of sovereign risk, which will be one of the themes going
into 2010," said Ned Rumpeltin, currency strategist at Nomura
in London.
A European Central Bank board member said Monday Greece
needs to ensure it improves its rating by the end of 2010.
[]
YEN RALLIES, DOLLAR FUNDAMENTALS EYED
Abu Dhabi's bailout announcement also triggered selling in
the low-yielding yen. But the initial dollar and yen weakness
fizzled, and traders cited talk of Japanese yen repatriation.
The dollar fell 0.5 percent to 88.63 yen <JPY=>, unable to
sustain a jump above 89 yen after Dubai's announcement.
Traders cited Japanese exporters selling the greenback
after its rise. The dollar index, a non-traded calculation
which measures the dollar's performance against six currencies,
fell 0.3 percent Monday to 76.343 <.DXY>.
Last Friday, the dollar index hit its highest since
November 3.
Recent stronger-than-expected economic reports on U.S.
employment and retail sales have bolstered the view that the
Fed may have to act sooner than expected.
Investors were also watching to see whether a year-long
trend in which the dollar weakens on strong U.S. data was
starting to break down.
For most of the year, investors sold dollars on signs of
U.S. growth because they were betting U.S. interest rates would
nonetheless stay low well into 2010, making other currencies
and higher-yield assets such as stocks more attractive.
Alan Ruskin, chief international strategist at RBS
Securities in Greenwich, Connecticut, said strong readings on
U.S. retail sales and jobs may well boost the dollar.
But on days with little new economic news, he said "we will
revert back to trading off the dollar's relationship with risk,
but with the caveat that there will be much less exuberance to
buy the euro as a default on positive risk appetite days."
(Additional reporting by Jamie McGeever and Naomi Tajitsu in
London)
(Reporting by Nick Olivari and Steven C. Johnson; Editing by
Andrew Hay)
