Dollar Slips Amid Persistent US Bank Worries

The dollar slipped on Monday, losing some of its recent momentum, after better-than-expected earnings from Bank of America failed to convince investors that the worst for the U.S. financial sector is over.

The greenback had earlier gained against the yen and pared losses against the euro after Bank of America's second-quarter earnings beat a Reuters Estimates forecast, boosting U.S. stocks.

But investors remained wary ahead of a flurry of bank earnings due this week, including Wachovia on Tuesday.

The market also focused on a rescue plan for U.S. mortgage giants Fannie Mae and Freddie Mac .

"There was a lack of follow-through buying in the dollar after the Bank of America results," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto.

"The bank's results were less worse but concerns in the financial sector remain," he said.

In midday trading, the euro rose versus the dollar, below last week's record high of $1.6037 according to Reuters Dealing.

Against the yen, the dollar slipped, while the euro hit a record high at 169.91 yen, according to electronic trading platform EBS.

Wall Street stocks traded mixed on Monday after trading higher earlier in the session, while oil prices rallied, further dampening sentiment toward the greenback.

A slide in the index of U.S. leading indicators last month also weighed on the dollar, analysts say.

The dollar regained some strength last week after confidence in the U.S. financial sector, hit hard by the nearly year-old credit crunch, was boosted somewhat following better-than-expected results from Citigroup, , JPMorgan and Wells Fargo .

Earnings This Week

"There are further earnings reports coming out later in the week ... The market is going to play a little on the defense. They're not going to get too carried away buying dollars," Ronald Simpson, managing director of global currency analysis at Action Economics in Tampa, Florida.

"If the market begins to get a sense that perhaps the worst is over, the dollar will find its low and the market will then start to focus more on economic growth prospect for the U.S. and Europe," he added.

Troubles at Fannie Mae and Freddie Mac were also back on traders' radar screens this week.

U.S. Treasury Secretary Henry Paulson said on Sunday he was optimistic that the Congress would approve the government's request for authority to shore up the troubled mortgage agencies.

An analyst at Friedman Billings Ramsey said the U.S. government-sponsored enterprises (GSEs) will need to raise $10 billion to $15 billion each, and he expects both Fannie and Freddie stocks to see continued volatility until they raise fresh capital.

The market was also awaiting a speech from Philadelphia Federal Reserve Bank President Charles Plosser on Tuesday, while New York Fed President Timothy Geithner and U.S. Securities and Exchange Commission Chairman Christopher Cox are set to testify before a U.S. House Financial Services Committee hearing on regulation on Thursday.

The Fed releases its Beige Book anecdotal summary of the economy on Wednesday where it will have to balance weakness in the housing market and the squeeze in credit markets against rising inflation.

U.S. home sales data is also due this week.

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