/www.fxserver.com/ TOKYO, Feb 17 - The dollar regained strength in Asia on Monday morning on solid bids from Japanese investors and receding fears that the United States would lead an attack against Iraq soon.
Chief U.N. arms inspector Hans Blix was more dovish than expected on Friday in his report on Iraq's arms cache, leaving the Security Council still divided over the need for war.
A flood of anti-war demonstrations around the world also gave impetus to the view that war might at least be postponed.
The greenback found solid bids from early trade, rising to a session high of 120.78 yen, but the market was careful about chasing it too strongly on heavy sell orders seen lined up around 121 yen, dealers said.
At 0250 GMT, the dollar was quoted at 120.60/63 yen against Friday's late U.S. level of 120.27/35.
The euro backed off to $1.0731/34 from Friday's $1.0788/92. Against the yen, the euro was hardly changed at 129.44/51 yen against 129.53/64.
"With the possibility of imminent war fading, dollar bears, who had speculated on the tension to grow after Friday's report, actively covered their positions," said Hideaki Furumaya, head of the interbank desk at Trust and Custody Services Bank.
"But still the market is careful about bidding too strongly as uncertainty remains and as an anti-war mood is spreading," he said.
Furumaya said that it was premature to determine that sentiment for the dollar has turned bullish because the uptrend may have been exaggerated because of market-thinness ahead of the President's Day holiday in the United States on Monday.
The market's focus is expected to remain on developments in Iraq.
Blix said there was no evidence that Iraq had weapons of mass destruction, and he noted that Baghdad had taken some steps to cooperate with his team.
But he also pointed out that Iraq had missiles with ranges that exceeded U.N.-mandated limits and said it was still not doing enough to prove it had done away with banned weapons.
There was muted reaction in the market to Monday's news that NATO had broken its deadlock over planning for the defence of Turkey in the event of a U.S.-led war against Iraq.
INTERVENTION, BOJ GOVERNOR
The dollar was also aided by the market's continued nervousness about buying the yen heavily due to wariness over Japanese intervention and uncertainty over who will be the next Bank of Japan (BOJ) governor.
Japan's top financial diplomat, Zembei Mizoguchi, offered a fresh verbal warning on Monday, saying the Finance Ministry would watch for excess movements in the forex market and take action as needed.
Dealers said wariness about intervention has had a stranglehold on the market since the covert intervention by the ministry in January.
"Speculators are constantly looking for opportunities to sell the dollar, but threat of intervention is there," said Mitsuru Saito, chief economist at UFJ Tsubasa Securities.
"Rumours of intervention have been surfacing over and over this month, and the market is waiting for (the BOJ's) data to see whether Japan actually stepped in," said Saito, referring to the data that will be unveiled at the end of February.
"The dollar could come under pressure if the BOJ refrained from intervention (in February) at times when the dollar mostly stood above 120 yen," he added.
Speculative yen-buying demand was on the rise again, with the Commodity Futures Trading Commission's Commitments of Traders report showing that yen-long position building in IMM yen futures increased during the week of February 5-11.
The report showed that net yen-long positions jumped to 10,709 contracts from 5,594 in the previous report.
Elsewhere, the Australian dollar was supported after credit ratings company Standard & Poor's upgraded the country's sovereign rating to AAA from AA-plus.
The Aussie dollar briefly spiked up around a quarter cent on the upgrade news, but the rise proved short-lived as other companies -- Fitch Ratings earlier this month and Moody's Investors Service in October -- have also upgraded Australia recently.
The Aussie dollar was quoted at 59.19/24 U.S. cents after rising to a high of 59.32 shortly after the upgrade.