Dollar Gains on Safe-Haven Flows, Geithner Comments

The U.S. dollar rose Thursday bolstered by its perceived safe-haven status and comments by Treasury Secretary nominee Timothy Geithner, who said a strong dollar is in the United States' interest.

The Senate Finance Committee Thursday backed Geithner, President Barack Obama's nominee to head the U.S. Treasury, clearing the way for a full confirmation vote in the Senate.

The committee approved the nomination on a 18-5 vote, with the only no ballots coming from Republicans.

Geithner's comments came against the backdrop of ongoing investor concerns about the health of the global economy with sterling still pressured by Britain's banking and economic woes.

Currency markets were also buffeted by poor U.S. economic data and speculation of currency market intervention.

The dollar weakened against the yen after a report showed a larger-than-expected increase in the number of U.S. workers filing claims for jobless benefits as a year-long recession continued to chill the labor market.

Gains in the yen were limited by investors on alert for possible Bank of Japan intervention after Swiss officials issued similar warnings.

The yen is near a 13-1/2-year peak against the dollar and hit a seven-year high versus the euro on Wednesday.

"It is no surprise to us. We think this is what his mantra is going to be," Greg Salvaggio, vice president of trading at Tempus Consulting in Washington said of Geithner.

A strong dollar, Salvaggio added, "provides an anchor to continue attracting capital to pay for all this deficit spending that's going to occur, and when the economy starts to recover, it will help keep inflation under control." Midway through the New York session, the euro was down 0.6 percent against the dollar to $1.2957.

The euro dropped against the yen, falling back toward the seven-year trough touched on Wednesday.

The dollar was down versus the yen, but off Wednesday's low of 87.10, the lowest since July 1995.

Sterling dropped against the greenback, not far from the trough touched Wednesday, its lowest since 1985.

The euro gained against the troubled UK currency .

US vs World

In other U.S. data, new U.S. housing starts and permits tumbled to a record low in December, accelerating a downward spiral.

"On balance, the dollar is not expected to fall too much because the market has been bracing for dismal news anyway," said Omer Esiner, senior market analyst, Ruesch International in Washington.

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"Bad news out of the euro zone and Japan has benefited the dollar and that should continue despite bad U.S. economic data," Esiner said.

Euro sentiment has been dented by three rating downgrades of euro-zone countries within a week.

S&P cut Portugal's sovereign rating on Wednesday after downgrading Spain and Greece.

The pound has come under severe pressure this week as a government rescue package for struggling British banks failed to reassure investors or stem losses in banking stocks.

There are also major concerns about the deteriorating state of UK public finances and how the government will fund huge bailout packages when it is already running a large fiscal deficit, just as a weakening economy dents tax receipts.

A G7 source also told Reuters that sterling's slide would be discussed at the next meeting of the Group of Seven industrialized countries in February.

Japanese authorities have repeated their mantra that they were watching currency moves closely, but refrained from commenting on yen-selling intervention.

"The risk of yen intervention is increasing, but even if they (the Japanese authorities) do intervene they won't be able to reverse the trend, given the deleveraging forces in play," BTM-UFJ currency economist Lee Hardman said from London.

The Swiss National Bank said on Wednesday it may use unlimited foreign exchange intervention to weaken the Swiss franc and avert deflation. The dollar was up versus the Swiss francs .

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