FOREX-Dollar headed for weekly loss; bullish outlook intact
* Dollar rebounds, though on pace for weekly loss of 1.7 pct
* U.S. consumer sentiment slipped in July
* Fitch downgrades France rating, cites economic uncertainty
NEW YORK, July 12 (Reuters) - The U.S. dollar rebounded on Friday but was headed for its biggest weekly loss in five weeks as traders pushed back expectations on the timing of a reduction in stimulus by the U.S. Federal Reserve. The euro came under pressure after Fitch cut France's credit rating on an uncertain economic outlook as the euro zone crisis risked flaring up anew and the need for structural reform.
Traders said the outlook for the dollar remains bullish because the Fed is likely to be the first major central bank to step away from ultra-loose monetary policy. The latest selloff in the dollar, in part, reflected a close-out of long positions that have increased rapidly in recent weeks, they said. The value of the dollar's net long position rose to $27.94 billion in the week ended July 9, doubling in value since late June, according to data from the Commodity Futures Trading Commission released on Friday. The dollar hit three-year peaks on Tuesday as expectations built that the Fed could start reducing stimulus as early as September. But it fell sharply after the release of the minutes from the Fed's latest policy meeting and comments from Chairman Ben Bernanke on Wednesday quashed those expectations. "There is some argument for suggesting that the shock effect of a dovish Bernanke has largely been digested," said Alan Ruskin, global head of foreign exchange strategy at Deutsche Bank in New York. "Even if he tries to avoid changing his tone, any policy surprises are more likely to be in a positive dollar direction than the reverse." Analysts said the U.S. economy is on a much firmer footing than its major counterparts, making it more likely the Fed will scale back its stimulus this year. In contrast, the European Central Bank, the Bank of England and the Bank of Japan are all looking to ease monetary policy further. The Fed's bond-buying program is largely deemed as negative for the dollar because it is tantamount to printing money and dilutes the value of the currency. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.3 percent to 82.974, but remains below a three-year peak of 84.753 reached on Tuesday. On the week, the index was down 1.7 percent, the biggest weekly loss since the week ended June 7. Bernanke said on Wednesday that a highly accommodative monetary policy would be needed for the foreseeable future because of low inflation and weakness in the labor market. Minutes of the Fed's June meeting indicated that officials wanted more reassurance the employment recovery was on solid ground before a policy retreat. Friday's data painted a mixed picture of the U.S. economy. Consumer sentiment edged lower in early July, while the government reported a firm rise in wholesale prices in June, which could make the Fed more comfortable reducing its monetary stimulus. If readings next week on U.S. retail sales and housing activity come in solid, that could highlight the divergence in growth between the United States and its peers - the euro zone, Britain and Japan, analysts said. The euro fell 0.2 percent to $1.3064, pulling back from a near three-week high of $1.3201 on Thursday. One of the ECB's top policymakers, Peter Praet, said the bank will keep interest rates at current levels or cut them even further, as long as inflation remains moderate. The euro pared losses versus the dollar as Portuguese bond yields came off session highs. Yields climbed after Lisbon delayed its creditors' next review of the country's bailout because of a political crisis. The dollar gained 0.4 percent to 99.34 yen. On the week, the euro gained 1.8 percent against the dollar, the best week since mid-January. The dollar lost 1.8 percent versus the yen, the largest since mid-June. The Australian dollar fell 1.4 percent to $0.9060 on caution before the release of China's growth data on Monday. China is a major export market for Australia. Analysts' forecasts point to China's economic growth slowing modestly to an annual rate of 7.5 percent in the second quarter , but many economists see downside risks after a run of disappointing data.