Dollar Gains Ground, Japan Stocks Cautious

The U.S. dollar rose against the yen and euro on Monday as investors looked to U.S. authorities for steps to help the financial sector and the economy, while oil prices slipped on fears about a deepening global downturn.

Japanese stocks trod water ahead of corporate earnings, but many Asian markets were closed for the Lunar New Year, with Australia and India also shut for national holidays, making activity thin.

U.S. President Barack Obama's top economic adviser did not rule out that more money may be needed to stabilize the U.S. financial system, as Obama sought at the weekend to build public support for an $825 billion economic recovery plan.

The Federal Open Markets Committee (FOMC) meets on Tuesday and Wednesday, with the market awaiting signs of how the Fed will help the broader U.S. economy now its main monetary tool, the fed funds rate, is set to remain in a range of zero to 0.25 percent.

"What investors are concerned about most is the health of the UK and European banking sectors and that is hitting European currencies and lifting the dollar, while hopes for the Obama administration helping the U.S. economy persist," said Yasutoshi Nagai, senior economist at Daiwa Securities SMBC.

Japan's Nikkei 225 Average   hovered near a two-month closing low set on Friday, with investors spooked by dismal earnings outlooks including a profit warning by construction machinery maker Komatsu.
     
Bleak Earnings

Bank shares including Japan's top lender Mitsubishi UFJ Financial Group got an early lift after a jump in the S&P Financial Index on Friday on hopes the United States would forge another rescue package for the ailing financial sector. But they quickly pared their gains.

"A series of bigger-than-expected downward revisions that came out last week is hitting stocks hard," said Takahiko Murai, general manager of equities at Nozomi Securities. "Investors are now trying to factor in the notion that earnings may further deteriorate in the year to March 2010."

The dollar gained 0.4 percent to 89.13 yen as traders who sold it down to a 13-year low last week bought it back ahead of the Fed meeting.

Sterling remained under pressure, falling 0.5 percent against the yen, not far from last week's record low and 1.09 percent against the dollar to $1.3650, not far from a 23-year trough set last week.

The euro shed 0.6 percent to $1.2903, holding above a six-week low of $1.2764 set last week on the EBS platform, when dismal British and euro zone data led investors to shift money from European currencies to the U.S. currency.

Oil fell, cutting into a 14-percent three-day gain as traders brushed aside the latest evidence of OPEC's production cuts to focus on forecasts for a deepening global economic downturn.

An International Monetary Fund official said at the weekend the Fund would cut its 2009 global growth forecast to between 1 percent and 1.5 percent.

U.S. light crude for March delivery fell 68 cents to $45.79 a barrel in the Asian session. The contract rose 6.4 percent on Friday.

Gold inched down to hover below $900, pausing from a rally late last week, when it rose 5 percent on strong investment demand. Spot gold was down nearly 1 percent at $891.55 an ounce against New York's notional close of $898.10.

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