FOREX-Dollar gains as optimism on US bank plan dims

                                
 * Dollar gains as optimism on Geithner plan fades
                                
 * Sterling/dlr hits 6-week high on CPI data, King comments
                                
 * Euro pressured as policy-makers hint at euro rate cuts
 (Adds details on sterling, updates prices)
                                
 By Gertrude Chavez-Dreyfuss
                                
 NEW YORK, March 24 (Reuters) - The dollar rose on Tuesday
as optimism about a U.S. government plan to remove bad assets
from banks' balance sheets dwindled, prompting investors to
resume safe-haven bets on the greenback.
                                
 The dollar also gained support from a growing view that the
Federal Reserve's quantitative easing -- buying U.S. Treasury
debt that would massively expand Uncle Sam's balance sheet --
would not undermine the currency as many initially thought.
                                
 Sterling, meanwhile, posted strong gains, hitting a
six-week high against the dollar after UK inflation rose
unexpectedly in February and Bank of England Governor Mervyn
King said the central bank's quantitative easing program may be
reduced if it is successful. See [ID:nLO953922].
                                
 "We're seeing a pullback in (U.S.) equities from
yesterday's steep gains, and that has caused a pause in the
selling of the dollar. So, this is the risk-aversion theme once
again," said Ken Landon, a currency strategist at JPMorgan
Chase in New York.
                                
 "The bloom has come off the euro, in particular, and its
gains had been overextended anyway. When the Fed announced
quantitative easing last week, people rushed to sell the
dollar," Landon added.
                                
 In New York trade, the dollar was up 1.0 percent on the day
at 97.99 yen <JPY=> but off the day's high of 98.56 yen,
according to Reuters data.
                                
 The euro rose 0.1 percent to 132.40 yen <EURJPY=EBS>,
having earlier struck 134.50 yen on trading platform EBS, its
highest level since October.
                                
 The yen remained under pressure as continuing worries that
the currency is overvalued, combined with concerns about
Japan's weak economy, erode the unit's safe-haven status.
                                
 The euro fell 0.9 percent against the dollar to $1.3508
<EUR=EBS>, down from the two-and-a-half month peak of $1.3739
touched last week on EBS. The euro was almost midway between
the session peak of $1.3678 and low of $1.3476, based on EBS
data.
                                
 The euro was also under pressure as euro zone policy-makers
suggested interest rates in the region could fall further, just
as data showed manufacturing and services sector activity
continued to contract significantly.
                                
 Among other currencies, sterling rose to $1.4778, the
highest since Feb. 10. The pound last traded up 1.0 percent at
$1.4710  <GBP=>
                                
 In Washington, U.S. Treasury Secretary Timothy Geithner and
Federal Reserve Chairman Ben Bernanke testified before Congress
about bailed-out insurer American International Group Inc and
regulation. [ID:nN24335995] But their appearance had muted
impact on the currency market.
 (Additional reporting by Nick Olivari; Editing by Dan
Grebler)