23 February 2005, 15:14  Dollar Regains Grounds on Euro, Yen As South Korea Denies Plans to Sell Currency

The U.S. dollar recovered a bit Wednesday after a monthly survey found German business executives less optimistic about Europe's biggest economy and South Korea denied it plans to sell the currency.
The 12-nation euro dipped to $1.3211 from $1.3257 in late New York trading Tuesday, while a sharp drop in Japan's trade surplus also pushed the dollar back up to 104.81 yen, some 0.75 yen above its level late Tuesday.
The British pound fell slightly to $1.9085 from $1.9112.
Disappointing data in Germany's Ifo index of business confidence weighed on the euro, especially because analysts had predicted a slight rise. The index, which measures current conditions and executives' six-month outlook, fell to 95.5 from 96.4 in January.
The latest data raised questions about the strength of Germany's economic recovery, which has been dogged by weak domestic demand. Economists say high unemployment and shrinking social programs tend to make German consumers afraid to spend.
Earlier Wednesday, South Korea's central bank denied reports that it was going to start selling the dollar to diversify its foreign reserve holdings. The nation holds massive foreign exchange reserves, and that prospect that it might switch to currencies other than the dollar had sent the dollar lower.
"Reports that the Bank of Korea will sell dollar assets are false," the BOK said in a statement.
Kang Myun-Mo, director general of the BOK's reserve management department, told Dow Jones Newswires the bank would hold onto its dollar asset reserves, but may buy bonds issued by "major countries" with new reserves.
"We've been diversifying our foreign exchange assets since many years ago," said Choi Joong-Kyung, director-general of the Ministry of Finance and Economy's international finance bureau. "It shouldn't suddenly make news and the market's reaction shows how irrational the sentiment is."
A Japanese Ministry of Finance official told Dow Jones Newswires that Tokyo has no plans to diversify its foreign exchange reserves, further easing fears about the dollar.
The euro soared from about $1.20 in September to an all-time high of $1.3667 at the end of December, powered by concerns over the U.S. budget and trade deficits.
While the Bush administration has professed a "strong dollar" policy, many believe it has been tacitly letting the currency fall because it helps boost U.S. exports by making them less expensive.
European leaders have expressed concerns that continuing dollar weakness could start to seriously harm their economies by making exports more expensive or cutting into manufacturers' profits.

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