SINGAPORE, Nov 24 - The U.S. dollar rose on mild position-squaring against the yen and euro on Monday as a holiday in Tokyo, Asia's largest forex market, thinned trade, but dealers said its medium-term prospects remained bleak. They said the market had gone massively short of U.S. dollars as the currency fell to a three-year low against the yen and to record lows against the euro last week. "After last week's fall there is room for some dollar correction, especially against the yen," said a dealer at a Singapore bank. By 0407 GMT the euro was around $1.1907/12, slightly above late Friday's $1.1912. The euro hit a record high of $1.1977 last week. Against the Japanese currency, the dollar was at 108.87/92 yen , near its session highs, compared with late Friday's 108.81.It hit a three-year low of 107.51 yen last week. Dealers said most players expected Japanese authorities to remain vigilant about the yen's strength, unless the benchmark Nikkei share index <.N225> recovered from its recent decline. "That view, and with short dollar positions a bit extended, you can see some correction in the dollar," the dealer said. Japanese trade, jobs and inflation data due later this week were expected to provide fresh cues to the market. Trading conditions were thin on Monday with financial markets in Tokyo closed for Labour Thanksgiving Day and no major data releases on the schedule elsewhere. Dealers said the lack of liquidity meant any fresh news related to last week's terror threats could spur volatile moves.
TERROR THREAT
"Other than short-covering, the big picture trading theme for the dollar remains the same," said Jimmy Koh, head of treasury research at Singapore's UOB Bank. Koh said news of violence targeting American interests had hurt dollar sentiment, while fears of U.S. trade protectionism and waning foreign appetite for U.S. assets would add to the downward pressure. The dollar weakened on Friday after a Saudi newspaper reported threats of fresh attacks by February. The U.S. government issued an advisory warning of a continued desire by al Qaeda to attack American interests overseas. But it said the threat level at home remained the same. A firmer finish on Wall Street helped push the dollar up from intra-day lows on Friday, but analysts expected its medium-term downward bias to persist. Washington's announcement last week that it would impose quotas on some imports of Chinese textiles sparked fears that protectionist policies might slow U.S. economic growth, driving investors away from the dollar. Tuesday's release of preliminary third quarter gross domestic product data and November consumer confidence readings and Wednesday's durable goods orders for October and business sentiment indices for November were likely to offer some support to the dollar, dealers said. But trading interest would be marred by the U.S. Thanksgiving Day holiday on Thursday. "We don't expect evidence of economic strength to be sufficient to generate any kind of trend dollar recovery," said UBS strategist Daniel Katzive in a client note.//