TOKYO, Dec 29 - The dollar fell towards recent lows against the euro and the yen on Monday as traders returned from Christmas holiday and sold the greenback on mounting geopolitical worries and the yawning U.S. current account deficit. Dealers said there were no fresh factors behind Monday's dollar-selling although some said a rise in the Nikkei share average <.N225> above 10,500 was prompting some yen-buying. "The dollar-selling trend is unchanged," said Katsunori Kitakura, manager of the treasury department at Chuo Mitsui Trust and Banking. "The market's focus is on the U.S. twin deficit and as long as that does not change, I don't think the dollar will be bought." Boosted by hopes that a good start for Wall Street next year will also push up Tokyo stock prices, the benchmark Nikkei average <.N225> closed at a seven-week high of 10,500.62, the highest close since November 10. As of 0623 GMT, the euro was pushing up to $1.2454/59 , just short of a record high around $1.2470 hit last week. It fetched 1.2425/31 in late U.S. trade on Friday. The dollar also matched a two-week low of 106.93 yen , drifting close to a three-year trough of 106.74 hit earlier in the month.
But dealers said fears of possible Japanese intervention were halting further falls for now. Players suspect the Bank of Japan (BOJ) intervened on Friday when the dollar fell to a low of 106.93 yen. Some said the BOJ may have stepped in earlier on Monday when the greenback fell to that level again. "Japan will almost certainly intervene so I don't think many players will want to push dollar/yen down," said Toru Umemoto, a currency strategist at Morgan Stanley in Tokyo. On Friday, Finance Minister Sadakazu Tanigaki said that Japan would act on exchange rates if the market strayed from economic fundamentals. The Ministry of Finance also said on Friday that the BOJ had agreed to a government request for short-term funding to soothe worries it may soon run out of funds to intervene in the currency market. The BOJ policy board agreed to issue three-month repo pacts for up to 10 trillion yen ($93 billion). Looking ahead, Morgan Stanley's Umemoto said an upcoming meeting of Group of Seven (G7) finance ministers due early next year could become a key event for the market. "I don't think EU finance ministers are very pleased about the euro's recent strength," he said, adding that they could voice such concerns at the next G7 meeting. ($1=107.26 Yen)//