.// By Shinichi Kishima
TOKYO - The dollar firmed against major currencies on Wednesday, giving it some breathing space above four-year lows against the euro set a day earlier, on modest hopes of a compromise U.N. resolution on Iraq.
With six uncommitted U.N. Security Council nations proposing a 45-day reprieve for Iraq to satisfy disarmament demands, traders took profits on short dollar positions that had built up during the U.S. currency's relentless slide over the past week.
Yet prospects of an eventual war kept the dollar's recovery outlook dim and the dollar remained within one percent of Tuesday's lows against the euro and last week's seven-month lows against the yen.
"The dollar is firmer at the moment, but no one is going to turn bullish and keep on buying at this point," said Masamichi Koike, head of spot foreign exchange trading at Sumitomo Mitsui Banking Corp.
The dollar was pegged near the day's highs around 117.25 yen at 9:40 p.m. EST Tuesday, up from around 117.10 yen in Tuesday's late New York trade and almost one yen above Friday's seven-month lows around 116.35 yen.
It also hovered near the day's highs around $1.1025 to the euro compared with about $1.1040 late on Tuesday and four-year lows around $1.1085.
U.S. officials said Washington would look at proposals that give Iraq more time than the initial March 17 deadline suggested last week but said a U.N. vote would take place this week.
With France and Russia threatening to wield their Security Council veto power against any resolution that authorizes a military strike against Iraq, the United States showed signs that it would be more flexible with its terms.
POLICY MANEUVERES
The dollar was also supported by caution against Japanese authorities' yen-selling intervention.
The Ministry of Finance, which disclosed last month that Tokyo had stepped into the market on several occasions in January and February, was widely believed by traders to have intervened again a few times earlier this month.
Wariness of such action has also been fueled this week by reports that large-scale intervention could be part of possible government emergency economic measures, hastily discussed among ruling party officials and bureaucrats after the Nikkei stock average dropped to 20-year lows below the 8,000 mark.
"The dollar's worry continues to be Iraq," said a trader at a U.S. bank in Tokyo. "But against the yen, it will be difficult to sell further on intervention fears."
The Nikkei was up about 0.8 percent on the day but was still below the 8,000 level by midday in Tokyo.
Traders said the Nikkei's recent slide, which put more pressure on Japanese investors to liquidate overseas assets and repatriate funds, had been one reason depressing the dollar against the yen lately and that any rebound in the Nikkei was a positive factor for the dollar.
Japan's machinery orders data, a key leading indicator for capital spending, was due out at 0500 GMT, with economists' median forecast pointing to a decline of 3.6 percent in January from a month earlier.
German wholesale prices were due out at 2 a.m. EST Wednesday and French industrial output at 2:45 a.m. EST, while January U.S. trade figures were expected at 8:30 a.m. EST.