By Chikako Mogi
TOKYO, May 16 (Reuters) - The dollar paused against the yen
on Friday, struggling to sustain gains near two-month highs as
weak economic data raised concerns about U.S. growth prospects.
Strong first-quarter growth in Germany and France helped
support the euro as the data highlighted the relative strength of
the European economy compared with that of the United States.
The yen trimmed losses against the dollar after data showed
Japan's economy grew 0.8 percent in January-March from the
previous quarter, above market expectations for a 0.6 percent
increase, for an annualised rise of 3.3 percent. []
"The euro's gain was probably temporary as it will be
difficult to rise further given other weak economic indicators
recently," said Masafumi Yamamoto, head of foreign exchange
strategy at the Royal Bank of Scotland.
The dollar also lacks direction following a recent mixed
batch of data, but it may receive support next week if FOMC
minutes for the April meetings show the Fed's caution against
inflation while euro zone data comes out weak, he said.
The dollar was little changed from late U.S. trade at 104.60
yen <JPY=>. It had slipped from around 104.89 yen after the
Japanese growth data, moving further from the peak of around
105.70 yen hit at the start of the month, the highest since late
February.
The euro rose nearly 0.3 percent to $1.5487 <EUR=> and was
also up 0.2 percent at 161.98 yen <EURJPY=R>.
LOOKING FOR CLUES
Market players continued to look for fresh factors for clues
about market direction, keeping prices in tight ranges, with
stock markets watching for signs of investor risk appetite.
"Extreme concerns about the financial market turmoil and a
serious U.S. recession are fading, but the risk remains that
worries about the financial sector will resurface," Yamamoto
said.
The dollar has been supported by steady gains in U.S. stocks,
rising U.S. bond yields and a growing view that the worst of the
credit crisis may be over, with the dollar index against a basket
of six major currencies hitting a two-month high last week.
But on Thursday, data showed factory activity in the U.S.
mid-Atlantic region shrank for a sixth straight month in May,
while manufacturing in New York state also declined, according to
reports by regional Federal Reserve banks. [].
"Major currencies are likely to be confined to narrow ranges
as players are still unsure about what to focus on, and with
positions largely brought back to neutral after recent
adjustments," said a senior dealer at a European bank.
Tokyo's Nikkei average was down about 0.2 percent, erasing
some initial gains <>.
Gains in the stock market usually signal a stronger appetite
among investors for risk, spurring carry trades in which
low-yielding currencies such as the yen are used to buy
higher-yielding currencies and assets.
The Australian dollar was up 0.5 percent at 98.87 yen
<AUDJPY=R> and rose 0.6 percent against the dollar to $0.9454.
U.S. interest rate futures still signal an expectation that
the Fed will raise the benchmark federal funds rate by a quarter
percentage point by the end of the year to 2.25 percent. They
were pricing in a 92 percent perceived chance that the central
bank would leave rates steady in June.
(Additional reporting by Shinji Kitamura and Tetsushi Kajimoto,
Editing by Michael Watson)
