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FOREX-Dollar edges up but China concerns check sentiment

Lisa Twaronite
Wednesday, 23 Oct 2013 | 8:22 PM ET

* Yen remains not far from two-week high against dollar

* Preliminary survey awaited for clues on Chinese manufacturing

TOKYO, Oct 24 (Reuters) - The dollar edged up against major counterparts in early Asian trade on Thursday, but was hemmed in recent ranges as investors remained cautious about liquidity conditions in China.

Chinese short-term money-market rates rose sharply to three-month highs on Wednesday after the People's Bank of China failed to inject cash for a second day and regulators expressed concern about loose liquidity and hinted they are considering taking measures to address inflation risks.

"Tighter liquidity at a time when the world is watching the pace of Chinese growth carefully has weighed heavily on Asian stocks, risk appetite and high beta currencies," Kathy Lien, managing director at BK Asset Management, said in a note to clients.

Investors will be watching a preliminary survey on Chinese manufacturing activity data due at 0145 GMT for the latest gauge on the strength of that country's economy.

The dollar edged up against the yen to buy 97.42 yen, but remained not far from a two-week low of 97.13 touched in the previous session.

The dollar was steady at 0.8922 Swiss francs, after dropping to 0.8908 on Wednesday, its lowest level since November 2011.

The dollar index, which tracks the greenback against a basket of six major rivals, was treading water from late U.S. levels at 79.282, with this year's low in sight at 78.918 set in early February.

The euro was nearly unchanged at $1.3777, with concerns about Europe's financial sector seen holding back the common currency. On Wednesday the euro rose to as high as $1.3794, its highest since mid-November 2011.

The European Central Bank said on Wednesday it would put major euro zone banks through rigorous tests next year to build confidence in the sector.

But some analysts say that if the review reveals large problems, it could have the opposite of its intended effect. Euro zone bank shares fell after the ECB announcement.

The Australian dollar was slightly higher at $0.9630 , but still well below its 4-1/2 month high of $0.9758 hit on Wednesday after a higher-than-expected domestic inflation reading reduced the chances of further interest rate cuts from Australia's central bank.

The dollar remains pressured by expectations that the U.S. Federal Reserve will delay tapering its stimulus until next year, after weak U.S. jobs data last week suggested the recovery is not yet on firm footing.

U.S. Treasury yields fell to their lowest levels in three months on Wednesday, as investors increased their bets that the Fed will maintain its asset purchases for a longer period.

Investors await U.S. data later in the session on weekly jobless claims, the trade balance and the latest reading on new home sales.