Dollar trims gains on China ‘loose policy’ comment

TOKYO - The dollar trimmed gains against most other major currencies on Thursday after China’s central bank said it will stick to a loose monetary policy to consolidate its economic recovery, easing market worries about its growth.

By (Reuters)

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Published: Thu 30 Jul 2009, 7:30 AM

Last updated: Thu 2 Apr 2015, 8:30 AM

The yen fell broadly after the Chinese central bank’s vice governor was reported as saying it will use market tools instead of quota-style controls to ensure credit growth is appropriate.

The report of his remarks came after Chinese stocks tumbled to their biggest daily decline in eight months on Wednesday amid worries that China may take steps to tighten money supply and banks could begin to restrict lending.

But the dollar held firm against the euro near two-week highs as traders said investors booking profits from a recent rally in share prices before taking summer vacations was another reason behind Wednesday’s sharp fall in Chinese stocks.

Such profit-taking in stocks and commodities is seen likely to continue for now.

“I personally feel that the market will see further corrective moves before more clues emerge on how the economy will fare after this summer, with the dollar broadly rising and commodities falling,” said Kosuke Hanao, head of treasury product sales for HSBC in Tokyo.

The euro cut earlier losses and was nearly flat from late U.S. trade on Wednesday at $1.4052.

It slid as low as $1.4007 on trading platform EBS the day before, the lowest since July 15 after concerns about Chinese growth hurt commodity prices and hit U.S. stocks, sparking a rush to the safe-haven greenback.

Against the yen, the euro rose 0.2 percent to 133.75 yen, and the dollar rose 0.2 percent to 95.20 yen.

The New Zealand dollar initially fell after its central bank kept interest rates at a record low 2.5 percent but left the door open to further cuts while warning that a strong currency was adding to the risks for economic recovery.

But the kiwi recovered to trade at $0.6505, up 0.1 percent on the day. It had earlier fallen as low as $0.6477 on Reuters dealing system, below a near 10-month high of $0.6635 hit earlier this week.

Market reaction was muted to figures showing Japan’s industrial output rose 2.4 percent in June, matching expectations and increasing for the fourth straight month. Manufacturers surveyed expect a further pickup in output towards August.

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