TOKYO, Dec 22 - The dollar crept lower on Monday amid lingering geopolitical concerns after Washington upgraded its alert level at the weekend on the likelihood of a terror attack on U.S. soil. Although the dollar held steady for most of Asian trading hours, with the security warning offset by news that Libya would scrap all of its weapons of mass destruction, worries that geopolitical risks could wipe out Wall Street stocks' hard-fought gains from last week weighed on the U.S. currency. With the Christmas holidays just days away, wariness of choppy trade in thin market conditions also prompted traders to err on the side safe -- which in recent weeks has been to refrain from buying dollars needlessly. "The security alert itself is not much of a surprise, considering all the things that the market has worried about for a very long time. But given the thin conditions, there is a risk that some big orders could come in and trigger big moves," said Hiroyuki Watanabe, foreign exchange manager at Shinsei Bank. The U.S. government raised its terror alert on Sunday to "orange", the second-highest level, saying there was a high risk of an attack around the holidays in the United States that could be bigger than the September 11 attacks of 2001.
The dollar stood at around 107.55 yen at 0532 GMT, down from around 107.75 yen at Friday's New York close. It eased to around $1.24 to the euro from around $1.2380. So far, damage to the dollar from the security alert has been limited, traders said. "The news about the alert level being raised to 'orange' did raise concerns, but it seems to have been canceled out by the Libya news," said Mitsuru Sahara, vice president of currency dealing at UFJ Bank. "The key will be how the U.S. stock market reacts," he added. Despite worries that Wall Street, where the Dow Industrials <.DJI> has risen some 23 percent so far this year, could be hit hard by the terror alert news, the Tokyo stock market's Nikkei average <.N225> ended the day up 0.86 percent.
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But traders noted that the dollar was not very far from record lows against the euro set last week around $1.2440 and three-year lows around 106.75 yen set earlier this month, adding that it could be standing on thin ice. "There is not very much movement ahead of the Christmas holiday, so there's very little chance the weak dollar trend is going to change," said Junya Tanase, global markets officer at JP Morgan Chase. Although strong U.S. data were expected later in the week, traders doubted whether they would boost the dollar, given the currency's lacklustre response to positive data surprises in recent months. The final reading of third quarter U.S. gross domestic product is due out on Tuesday, while durable goods orders are out on Wednesday. Japanese trade data released on Monday showed that the country's trade surplus continued to bulge in November, although both exports and imports were down from a year earlier in yen terms -- due in part to a higher Japanese currency which squeezes the yen-denominated value of transactions. Japan's customs-cleared trade surplus rose 11.3 percent in November from a year earlier to 990.16 billion yen ($9.18 billion), up for the fifth consecutive month. The market was also indifferent to a weekend confirmation by the Japanese government of its long-anticipated move to raise the borrowing limit for its foreign exchange intervention account. The Finance Ministry said it will raise the self-imposed limit to 140 trillion yen in fiscal 2004 from 79 trillion yen, saying it wanted the flexibility to cope with any unforeseen situation on the currency market. The move is widely seen as an attempt to fend off any speculation that the ministry could face a funding shortage for its yen-selling intervention. ($1=107.86 yen)//