TOKYO, Jan 14 - The dollar drifted in narrow ranges on Wednesday as the market weighed comments by European officials concerned about the currency's recent drop to record lows against the euro and those by U.S. officials who appeared less concerned. Federal Reserve Chairman Alan Greenspan led the U.S. camp, telling a Bundesbank seminar on Tuesday that the dollar's decline had yet to cause inflation or deter foreign capital inflow that is needed to fund the gaping U.S. current account deficit. On the other hand, Bundesbank President Ernst Welteke, German Chancellor Gerhard Schroeder, German Economy Minister Wolfgang Clement and French Finance Minister Francis Mer all expressed concerns about the economic impact of the euro's 40 percent rise versus the dollar over the past two years. The remarks come as the market ponders what the economic policymakers of the Group of Seven industrial countries might agree on at their meeting in Florida next month. "Essentially, Greenspan and the other Fed people are saying a weaker dollar is okay. From the euro zone, we're hearing groans, not just the government officials but from the European Central Bank people as well now," said Toru Umemoto, currency strategist at Morgan Stanley in Tokyo. "There seems to be a little tug of war going on in the run up to the February 6-7 G7 meeting," he said. At 0600 GMT, the euro stood at $1.2730/35 , down slightly from around $1.2765 late in New York on Tuesday and 1.5 percent off record highs near $1.29 set on Monday.
G7 POLITICS
The euro's relative stability this week -- after pulling back from those historic heights -- comes in the wake of remarks by ECB President Jean-Claude Trichet, who said on Monday that "brutal" foreign exchange moves were unwelcome. Previously, ECB officials had been perceived in the market as taking a so-called benign neglect attitude towards euro strength. But analysts said the calm could be short-lived, given the dominant, broad-based decline in the dollar of late. "I think European officials are very concerned about the speed of the euro's rise, not the level. So they are unlikely to step into the market even if the euro rises above $1.30," said Junya Tanase, forex strategist at JP Morgan Chase in Tokyo. "The euro may see more adjustment, but the overall uptrend will continue," he said. The yen was also little changed, hovering around 106.20 to the dollar , mirroring euro/dollar and also constrained by jitters about intervention by the Japanese authorities. The market showed little reaction to Japan's machinery orders data, which showed orders -- an early indicator of capital spending -- fell in November from a month earlier, as the drop was regarded as a reaction to big gains in the previous two months. The dollar/yen market was sandwiched by dollar sales by Japanese exporters and wariness of intervention, traders said. "Intervention has almost become a permanent factor in the market these days," said Hideaki Furumaya, head of the interbank desk at Trust & Custody Services Bank. Tokyo has made little secret of its displeasure about the yen's recent rise against the dollar to its highest level in more than three years beyond 106 yen. It intervened heavily last week to beat down the yen, adding to its 20 trillion yen ($188.3 billion) foray into the market last year. With a plan to raise the borrowing ceiling for the Finance Ministry's foreign exchange account not expected to be legislated in parliament before the end of the month, the ministry was expected to borrow short-term funds from the Bank of Japan. Under a deal struck last month, the ministry can sell up to 10 trillion yen worth of U.S. government bonds to the BOJ under a repurchase agreement. The Nihon Keizai Shimbun reported that five trillion yen of that would take place this week. ($1=106.22 yen)//