FOREX-Dollar gains vs euro, yen as Bernanke gives no QE3 signal
* Fed Bernanke refrains from signaling more bond buying * ECB lends out 530 bln euros in three-year lending * U.S. economic data paints brighter picture By Julie Haviv NEW YORK, Feb 29 (Reuters) - The dollar gained against the euro and yen on Wednesday as factors ranging from month-end positioning to a European Central Bank cash infusion and lowered expectations of another Federal Reserve bond-buying binge raised the greenback's appeal. Robust U.S. data, which typically increases risk appetite, favored the dollar versus the euro as it highlighted a growing disparity between the economies on both sides of the Atlantic. Ongoing financial strains in Europe prompted the ECB to infuse over a half a billion euros into financial markets. "The ECB's auction in some ways could be interpreted as a form of quantitative easing," said Charles St-Arnaud, foreign exchange strategist at Nomura Securities in New York. "But, today was a day where everyone was a little confused about the euro and there was not any big data out of Europe to trade off," he said. "Data in the U.S. was strong, which benefited the Canadian dollar, but not the Australian and New Zealand dollars. "When it comes down to it, there were a lot of moving parts today and not just one story drove the market." The euro accelerated losses against the dollar to hit a near one-week low. The dollar rose sharply against the yen after Fed Chairman Ben Bernanke told a congressional panel the U.S. unemployment rate had fallen more quickly than expected. Bernanke offered a tempered view of the U.S. economy and stopped short of signaling further Fed bond purchases, dashing the hopes of some traders in financial markets who were betting on more monetary stimulus. The Fed's two asset-purchase programs, known as quantitative easing, helped stimulate the economy but hurt the dollar's value as they were tantamount to printing money. Bernanke's testimony "confirms the fact the Fed is in wait-and-see mode," said Sean Incremona, an economist with 4Cast Ltd in New York. The euro fell as low as $1.3313 and last traded down 1.1 percent at $1.3318. The greenback also rose against the yen, hitting a high of 81.31 before receding to 81.18, still up 0.9 percent for the day. Nevertheless, it has been a strong year so far for the single currency, which has risen 2.9 percent against the dollar and 8.7 percent against the yen. So far this year, the dollar has gained 5.6 percent against the yen. U.S. economic growth was slightly faster than initially thought in the fourth quarter and a gauge of factory activity in the Midwest hit a 10 month-high in February, pointing to underlying strength in the economy. A report from the Federal Reserve showed the economy expanded modestly in January through mid-February as hiring picked up a bit across several districts. ECB ADDS LIQUIDITY The European Central Bank loaned 530 billion euros in cheap money on Wednesday, slightly more than analysts had expected for the bank's second long-term refinancing operation. More than 800 banks applied for funding - up from 523 banks in its first auction in December. This may suggest that some of the stigma attached to the ECB's Longer Term Refinancing Operation, or LTRO, may have dissipated. On the other hand, it could also mean more banks are in a vulnerable position, requiring more funds. While increased liquidity typically weakens a currency, the euro has not weakened substantially since the first LTRO, perhaps because it was a response to increased liquidity demand, according to Barclays Capital. "The second 3-year LTRO is likely to be more of a liquidity supply shock and weaken the EUR," the bank said. "We recommend a short EUR position against an equal weighted basket of USD and NOK (Norwegian krona)." The ECB lending eased some fears over the euro zone's sovereign debt crisis, analysts said, but did not address longer-term worries in the region. The ECB's move helped riskier currencies earlier in the day, lifting the Australian dollar to a 7-month high against the U.S. dollar, while pushing the New Zealand dollar to a 6-month high and the Canadian dollar a five-month peak against the greenback. But those gains left the currencies vulnerable to profit-taking in month-end rebalancing and they traded down.
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