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FOREX -Dollar steadies after two-day fall, Nowotny helps euro

Tuesday, 14 Jan 2014 | 4:37 AM ET

* Dollar stronger against yen after sharp fall post-jobs numbers

Euro prodded higher by ECB's Nowotny

* Swedish crown rises after inflation data

By Patrick Graham

LONDON, Jan 14 (Reuters) - The euro touched a two-week high against the dollar on Tuesday after European Central Bank official Ewald Nowotny said euro zone growth may surprise on the upside this year.

Separately, the Swedish crown jumped on higher inflation data.

Nowotny's comments pushed the euro 0.1 percent higher against the dollar, although strategists cautioned that they ran contrary to the concern expressed over the economy by the bank as a whole after last week's policy meeting.

"These comments by Mr Nowotny add to the cacophony coming out of the ECB's Governing Council. After Mr Draghi's comments last week, they represent conflicting signals and make one cautious on buying the euro in response," said Valentin Marinov, head of European G10 FX Strategy at Citibank in London.

"There may still be some room for the euro to be squeezed higher but in the medium term we still see the risks to the downside."

In general, the dollar was in steadier form, gaining back half a percent against the yen after two sessions which had halted to a bullish start to the new year for the U.S. currency.

Most banks believe the case for the dollar to rise this year is strong, given the contrasting outlooks for monetary policy in the United States compared with Europe and Japan, whose central banks are still considering more moves to support growth.

That suggests that a sell-off on Wall Street and of the dollar since poor employment data last Friday may just be a corrective pause that clears the way for more gains, though those may well be slow in coming.

"It does look like the recent weakness after the payrolls report is only a temporary setback for the dollar," said Lee Hardman, strategist with Bank of Tokyo Mitsubishi in London.

"A broader range of indicators in the U.S. are consistent with stronger economic growth. Generally we remain positive on the dollar; we believe the U.S. economy will surprise on the upside this year, leading the Fed to increase the pace of its tapering of bond-buying."

By 0809 GMT, the dollar had gained 0.45 percent to 103.43 yen, recovering after a more than 1 percent drop on Monday that saw it hit a roughly one-month low of 102.85 yen.

Euro zone November industrial production numbers later in the session may also strike a positive note for the euro.

"Industrial production in the euro zone is likely to record a solid monthly rise. However, the data would have to come in well above expectations for EUR-USD to breach the 1.37 mark," analysts from Commerzbank said in a note.

"Only in that case would there be a glimmer of hope that the ECB might assume a less dovish approach any time soon."

Sweden's crown, buffeted by contrasting signals on domestic interest rates over the past week, rose sharply after inflation came in above forecasts. 1/2ID:nL6N0KO0WI 3/8

The Australian dollar, which has benefited from the U.S. dollar's retreat after the weak jobs data, edged back from a one-month high set on Monday.

The Aussie dollar eased 0.2 percent to $0.9036, down from Monday's high of $0.9087.