DOLLAR. The dollar weakened against the euro and retreated from recent 3-1/2 month highs against the yen, after Japanese officials played down reports that Japan could start buying foreign bonds as part of its monetary policy. U.S. existing home sales data are due out later.

EURO. The euro rose against the dollar in thin trade and held on to gains against the yen after Japanese officials dampened speculation that Japan may start purchasing foreign bonds as part of its monetary policy.

YEN. The yen pulled itself off recent 3-1/2 month lows against the dollar and weakened against a broadly firm euro after Japanese officials played down reports that Japan could start buying foreign bonds as part of its monetary policy. Japanese Finance Minister Masajuro Shiokawa said the Bank of Japan had not decided on any such a move. BOJ Governor Masuru Hayami said the purchase of foreign bonds was not an urgent issue. Ratings agency Fitch cut Japan's soverign credit rating and warned of further cuts to come unless there was significant progress toward reform and fiscal consolidation.

STERLING. Sterling rose almost two thirds of a percent against the dollar after an opnion poll showed only a small minority of the British electorate think the pound should be replaced by the euro. Last week, the pound took a beating from talk that the government was planning to mount a push to get Britons to agree on joining the euro in a referendum before or around the time of the next election.

SWISS FRANC. The Swiss franc rose against a broadly weaker dollar and was little changed against the euro. Dealers said focus remained on the prospects for further interest rate cuts by the Swiss National Bank.