CHICAGO, Nov 19 - The dollar rebounded sharply from a record low against the euro and a three-year low against the yen on Wednesday as fears of yen-buying intervention trumped concerns about U.S. curbs on Chinese textile imports. The dollar vaulted from its three-year low of 107.58 yen when rumors that Japan was buying dollars spooked traders who had been selling the greenback aggressively earlier in the day. Japanese officials declined to comment on the rumors, but Finance Minister Sadakazu Tanigaki reminded markets that officials will act if exchange rates diverged from economic fundamentals. The dollar suffered an abrupt, broad-based sell-off starting on Tuesday when a U.S. Commerce Department official said the United States would put quotas on Chinese textile imports, causing analysts to fret that a more protectionist U.S. policies might brake economic growth in the world's biggest economy. Some traders were skeptical that Japan really did intervene. They said the dollar was bound for a corrective rebound after such steep losses earlier.
"It was just a little fear of heights," said Bob Priore, desk manager at Carr Futures in Chicago, of earlier yen gains. "But at some point you'll reach a level where the central banks will have an opinion." The Chinese quotas encouraged speculation that the U.S. administration was prepared to protect its domestic industries at all costs. Markets worried that a weaker dollar would be one means of achieving the jobs growth Washington is seeking before next year's presidential election. News of the import restrictions on Tuesday was compounded by data showing net foreign purchases of both U.S. stocks and Treasury bonds fell in September. This stoked concerns the U.S. may not be attracting enough foreign capital to fund its current account deficit, which is widely viewed as a burden on the dollar. "The mix of portfolio flow data from the U.S., along with the announcement of trade quotas on China have brought the funding issue back into the fore," said Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi. "It seems a logical conclusion to make that the Japanese have been given the wink from Washington to be more aggressive to bring some order back into the market," he said.
In early U.S. trade, the euro was down 0.38 percent at $1.1909 after touching a lifetime high of $1.1977 earlier . The dollar was up 0.76 percent at 108.86 yen . The dollar gained 0.65 percent to 1.3013 Swiss francs . The dollar edged higher on news that U.S. housing starts rose 2.9 percent in October to an annual rate of 1.960 million units -- the highest rate since 1986. Forecasts had called for housing starts to slip to 1.850 million. "It's certainly a positive surprise," said Patrick Fearon, economist at AG Edwards & Sons in St. Louis. "We have gotten a little positive economic data over the last few weeks. That will tend to bolster the dollar." Later Wednesday, Dallas Federal Reserve President Robert McTeer discusses the current state of the economy at 1 p.m. EDT (1800 GMT).//