* Dollar holds firm vs euro near a 1-month high
* U.S. stock gains help market ignore bad economic news
* Japan to scrap taxes for foreign investors - report
By Satomi Noguchi
TOKYO, Jan 7 (Reuters) - The dollar edged up against the euro
on Wednesday to hover near a one-month high hit the previous day,
continuing to draw support from gains in U.S. stocks on hopes for
an aggressive stimulus package from the Obama administration.
Persistent signs of economic weakness in the euro zone that
may force its central bank to cut interest rates further helped
pressure the euro against the dollar, as well as the yen.
The yen fell towards a one-month low against the dollar. It
gave up earlier gains on a newspaper report that Japan's
government will seek to scrap capital gains taxes for foreigners
investing in Japanese companies through funds, which could
encourage capital flows into the country. []
The dollar drew strength from early 2009 gains in Wall Street
shares, which also helped the currency market to ignore dismal
economic data including Tuesday's figures showing a steep drop in
factory orders and pending home sales in November.
[] []
"U.S. stocks, hopes for Obama, and a reversal of the broad
dollar-selling positions made in December will support the
dollar, possibly until Obama officially takes office later this
month," said Kengo Suzuki, a currency strategist at Shinko
Securities.
"But the state of the U.S. economy is so miserable. That will
prompt market players sooner or later to question the wisdom of
extended dollar buying," Suzuki said.
The Federal Reserve's most recent policy meeting suggested
the central bank is concerned that downside risks remain
substantial, although that did not dent the overall positive
sentiment surrounding the dollar on Tuesday. []
Traders will look to the ADP private employment report in the
U.S. due later in the day for clues to Friday's nonfarm payrolls
data for December from the government.
They said the current market bias is for dollar buying
underpinned by hopes for action from the new administration even
if economic figures are weak in the near term.
"After recent bleak economic figures, the jobs market data
this week may not provide a negative surprise. It is certain to
illustrate further deterioration in the U.S. jobs market," said a
trader at a Japanese bank.
"The dollar may decline to some extent in reaction to the
data after recent rallies in the currency, but losses will be
limited," he said.
The euro dropped 0.1 percent to $1.3520 <EUR=>, after having
tumbled as low as $1.3312 on trading platform EBS on Tuesday, its
lowest since Dec. 12.
The euro was pressured after a drop in euro zone inflation
boosted expectations the European Central Bank will continue to
cut interest rates, which would likely reduce the appeal of the
euro zone currency against the dollar and other major currencies.
The dollar index, a gauge of the greenback's performance
against six major currencies, was little changed at 82.818
<.DXY>, in sight of a one-month high of 84.023 touched the
previous day.
The dollar was steady at 93.69 yen <JPY=>, rebounding from
the day's low of 93.20 yen and moving towards a one-month high of
94.65 yen touched the previous day on EBS.
The Nikkei share average climbed 1.7 percent <>, hitting
a two-month closing high. []
(Additional reporting by Kaori Kaneko; Editing by Edwina Gibbs)
