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Dlr slips but supported after Nasdaq rally

TOKYO: The dollar slipped against the yen late on Thursday afternoon in Tokyo, after meeting stiff resistance above 111.50 yen from options-related selling.

But sentiment remained positive towards the greenback after US technology stocks rallied strongly overnight in reaction to soothing remarks by US Federal Reserve Chairman Alan Greenspan.

The dollar was quoted at 110.90/00 yen, down from 111.19 yen in New York late on Wednesday.

It earlier rose as high as 111.51 yen, but the upside was blocked by offers aimed at protecting options positions with strike prices around 112 yen, dealers said.

The euro was quoted at $1.0027/37, steady with $1.0028 in New York late on Wednesday.

The euro slipped overnight when the US currency was buoyed by a sharp rise in the technology-driven Nasdaq index.

The Nasdaq rose 168.21 points or 3.84 percent to close at a record 4,550.33 on Wednesday, after Greenspan said monetary policy is not necessarily aimed at keeping stock prices in check.

Greenspan also told the Senate Banking Committee in the second leg of his Humphrey Hawkins congressional testimony that the optimum monetary policy is one that moves in incremental steps.

"While Greenspan's remarks did not alter the perception that US interest rates will be raised in the coming months, the chairman sounded more market-friendly last night," said a dealer at a Japanese trust bank.

The Fed has raised the target for its key federal funds rate four times since last June. It is widely expected to tighten by another 25 basis points when its policy-setting Federal Open Market Committee next meets on March 21. Dealers expected the yen to remain vulnerable against the dollar and the euro amid expectations of a wider interest rate gap between Japan and the other two major currency zones.

While some players speculate that the European Central Bank might raise its key interest rates when its policy-setting council meets next week, the Bank of Japan (BOJ) decided to hold off on any changes to its policy.

The BOJ's Policy Board voted to maintain its year-old zero interest rate policy after it met on Thursday.

Kazuteru Hasegawa, principal and head of foreign exchange at Bank of America in Tokyo, predicted the single European currency would eventually rise to around $1.02 and 114 yen as the euro zone is likely to continue attracting capital flows.

"Some US investors have been shifting funds to the euro, especially since interest rate spreads between euro-zone assets such as (German) bunds and 10-year Treasury notes have shrunk considerably," Hasegawa said.

US rating agency Thomson Financial BankWatch on Thursday affirmed Japan's sovereign risk rating at with a stable outlook, but the news failed to lift the yen.

The market also shrugged off worse-than-expected Japan national retail sales data for January, released early on Thursday.

Japan's nationwide retail sales fell 2.2 percent in January from a year earlier, worse than the average forecast of a 1.0 percent drop by economists polled by Reuters.ency bid prices All data taken from Reuters with percent change calculated from the daily US close-Reuters