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Dollar softer after run-up, yen supported by stock gains

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Major currencies traded in tight ranges on Monday with investors facing a vacuum of data and modest price changes in global markets, save for Japan where stocks rallied on possible public pension fund spending, which helped boost the yen.

After a week of wide currency market gyrations, investors appear to have settled in for a quiet start to the week, unwilling to make fresh bets ahead of Wednesday's U.S. inflation data and Thursday's European manufacturing reports

In addition, the Federal Reserve is expected to follow through with its plan to end quantitative easing at the end of the month while benchmark U.S. interest rates are forecast to remain near zero well into 2015.

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The yen gained ground after Japan's benchmark Nikkei-225 stock index surged 4 percent on Monday, taking in upbeat U.S. economic data last week as well as news that Japan's $1.2 trillion public pension fund would likely raise its allocation to domestic stocks to about 25 percent from 12 percent.

Resignations in Prime Minister Shinzo Abe's cabinet were, in the short term, overshadowed by these external factors.

The dollar was just slightly negative against the yen at 106.84 yen, while the euro traded around $1.27, up against the greenback.

Worries about global economic growth persist.

Germany's central bank said on Monday the German economy, the largest in the euro zone, risks coming dangerously close to recession, forecasting little or no growth in the second half of the year.

The European Central Bank, meanwhile, said it had started buying covered bonds, opening a new front in its battle to revive the euro zone economy and keep deflation at bay.

The Bundesbank's gloomy assessment raises the prospect that the German economy could stay weak, compounding the problems of the 18-country currency bloc, whose economy is already slowing to a virtual halt.

German data showed producer prices declining for the 14th consecutive month, highlighting the disinflationary pressures that are causing concern to investors and policymakers alike.

—By Reuters

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