LONDON, Nov 4 - The dollar retained most if its gains to one-month highs made against the euro the previous day, but slipped from a one-month peak against the yen on Tuesday as Japanese exporters cashed in on the greenback's recent rally. The dollar charged up more than one percent to its strongest since late September against the euro, yen and Swiss franc on Monday after an Institute of Supply Management (ISM) survey showed U.S. manufacturing was recovering at a more sturdy pace than expected and forced dollar bears to buy the greenback back. But Japanese exporters, back from a three-day weekend on Tuesday, wasted no time addressing their persistent need to exchange overseas earnings into yen and forced the greenback off its peaks against the Asian currency. Strong stock market gains in Tokyo also helped the yen, while dealers were trying to gauge whether the dollar's rally meant investors were now betting on the greenback or just that fewer people were betting against it. "Yesterday the dollar was generally firmer against all currencies, but I think it was more a closing of short dollar positions than new positions being put in place," said Niels Christensen, currency strategist at Societe Generale. "After the sharp euro selloff following the ISM yesterday there has been a bit of consolidation today." The euro was holding steady in European morning trade at $1.1463 . It plummeted more than a cent on Monday to below $1.1430 , its lowest since September 29, after strong readings in the U.S. ISM index and construction spending figures sent the dollar rocketing up. The dollar had surged well above 111.00 yen on Monday but gave up a yen of its gains on Tuesday, to stand two-thirds of a percent down on the day, although still more than two yen up from a three-year low set last week. Reflecting falls in the dollar against the yen, the euro also slipped more than one yen to a two-month low of around 125.85 yen before recovering slightly to 126.54 yen.
DOLLAR TROUBLES LIFT
The dollar has been undermined for the past month by the perception that the United States is seeking a weaker dollar to help its manufacturers. The Group of Seven leading industrialised nations helped fuel that speculation with a call in September for flexible foreign exchange rates, which was taken as a criticism of Japan's dollar-selling intervention. U.S. Treasury Secretary John Snow said on Monday Washington's backing of flexible exchange rates did not mean the Bush administration had moved away from its long-standing "strong dollar" policy. Analysts said large short dollar positions had built up over the past few weeks and the dollar, particularly against the euro, had been due for a correction. In Tokyo the Nikkei share average <.N225> ended 2.73 percent higher on the day, its biggest one-day gain in two months. A /Nomura/JMMA Japanese manufacturing survey showed that its purchasing managers index rose to the highest level in the survey's two-year history. "In an environment of growing optimism on global growth, Asia and Japan still offer a very good story," said Jim McCormick, head of FX research at Lehman Brothers. "The yen's strength and the sharp bounce in the Nikkei is a reminder of this." In Europe, finance ministers are meeting to discuss France's breach of the budget deficit rules which underpin the euro. France is expected to win breathing space to give it time to offer deficit-cutting measures but discontent remains among smaller EU members about French efforts to comply. The long-running row has no immediate effect on the euro but analysts say it is likely to cap its scope for appreciation over the long term.//www.s.com