* Geithner calls for G20 not to block currency appreciation
* Dlr index flat at 77.41 <.DXY>, USD/Swissie at 3-wk high
* German Ifo index unexpectedly rises in October
(Recasts, adds quote, updates prices)
By Anirban Nag
LONDON, Oct 22 (Reuters) - The dollar steadied on Friday as
investors hesitated about extending bearish bets against the
greenback on uncertainty over whether any agreement would be
reached at a weekend meeting of Group of 20 finance leaders.
The United States raised its rhetoric, calling for countries
to avoid using their currencies to gain an economic advantage,
but its proposal to put a numerical cap on current account
balances ran into stiff opposition from Japan, Germany and some
emerging countries.
U.S. Treasury Secretary Timothy Geithner, in a letter to
G-20 finance leaders that was seen by Reuters, said emerging
economies with undervalued currencies and solid reserves must
allow their currencies to adjust in line with fundamentals.
[]
The dollar index, which tracks the performance of the
greenback versus a basket of six other major currencies, was
flat at 77.41 <.DXY> but off the day's low of 77.209.
"A new currency accord will be hard to achieve in principle
and even harder to push through in practice, over the hurdles of
domestic political pragmatism," said Lena Komileva, head of G7
market economics at Tullett Prebon.
Many in the market were sceptical of whether a binding
agreement would be reached. But they remained cautious about any
surprises such as a formal pact to allow Asian currencies to
appreciate.
Analysts said such a pact could include assurances from the
United States that any quantitative easing (QE) from the Federal
Reserve would be modest. Any such assurance could provide a
short-term boost to the U.S. dollar and would ease the pressure
on Asian central banks to intervene and check their currencies'
strength.
Asian and other emerging economies are wary that a large
amount of stimulus from the Federal Reserve would increase the
flood of dollar inflows to their countries, putting more upward
pressure on their currencies and leading to asset bubbles.
"Obviously, such an agreement puts liquidity trades at risk
and currencies like the euro which have benefited a lot from
this could see some correction," said Ian Stannard, senior
currency strategist, at BNP Paribas.
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FX tensions interactive map: http://r.reuters.com/jec96p
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FED IS THE STORY
The dollar also made solid gains against the Swiss Franc
<CHF=>, rising to a three-week high of 0.9778 francs on steady
buying by semi-official names.
Still, analysts say any bounce in the dollar maybe
shortlived until the size of expected quantitative easing (QE)
by the U.S. Federal Reserve is made clear, possibly at a policy
meeting next month. Expectations of more QE from the Fed has
seen the dollar index lose more than 7 percent since early
September.
"The dollar remains on the back foot until the Fed; that is
the main story," said Lee Hardman, currency economist at Bank of
Tokyo-Mitsubishi UFJ.
The euro briefly recovered losses, rising after the German
Ifo institute's business sentiment index unexpectedly rose in
October to 107.6 from 106.8. [].
Higher interbank euro rates were also supportive, but
overall the single currency struggled to stay in positive
territory and was last marginally higher on the day at $1.3930.
<EUR=>
The dollar slipped 0.26 percent to 81.15 yen <JPY=>, holding
above a 15-year low of 80.84 yen hit earlier this week and a
record postwar low of 79.75 yen set in 1995.
Wariness about Japanese intervention has supported the
dollar, after Tokyo stepped into the market in September for the
first time in six years to rein in the yen. [].
(Additional reporting by Tamawa Desai)
(Editing by Susan Fenton; Graphics by Scott Barber)
