Dollar Up vs. Yen, Down vs. Euro as Fed Meeting Looms

The dollar rebounded against the yen on Monday, riding a rally in U.S. stocks ahead of Tuesday's Federal Reserve meeting.

The U.S. currency nearly hit an all-time low against the euro , however, and remained weak against other major currencies amid concern over the health of the U.S. economy.

The dollar strengthened against the Japanese currency, rising to 118.43 yen after falling as low as 117.16 earlier in the day. The dollar bought 118.41 yen on Friday.

Wall Street's surge on Tuesday encouraged traders to sell off low-yielding assets such as the yen in favor of riskier, higher-yielding currencies including the dollar.

The 13-nation euro rose to $1.3839 in New York trading Monday -- just short of its all-time high of $1.3852 -- but later fell to $1.3798, just above $1.3801 late Friday. The British pound dropped to $2.0300 from $2.0447, but is still trading at 26-year highs against the dollar.

In other trading, the dollar bought 1.1891 Swiss francs , down from 1.1901 late Friday, and 1.0527 Canadian dollars , slipping from 1.0528.

With no major economic data released Monday, markets were looking forward to a U.S. Federal Reserve meeting this week for hints as to whether interest rates may be lowered amid fears of a slowdown.

On Friday, Labor Department data showed that the U.S. unemployment rate inched up to a six-month high of 4.6 percent in July as hiring slowed down.

Worries about the U.S. lending climate have badgered markets since last week, and investors are concerned that weakness in the U.S. subprime mortgage sector will spread to global credit markets.

The Fed has kept its benchmark interest rate steady at 5.25 percent, as it has done for the past year, even as the Bank of England and the European Central Bank have increased their rates.

Higher interest rates, a weapon against inflation, can support a currency by offering investors better returns on investments denominated in that currency.