FOREX-Dollar slips vs yen but still robust after U.S. data backs Fed view
* Yen benefits from continued fears of China credit crunch * China still a focus even after PBOC tries to allay credit fears * Dollar remains well supported on Fed's exit plan By Lisa Twaronite TOKYO, June 26 (Reuters) - The dollar turned down against the yen in Asia on Wednesday as investors warily watched China's stressed markets, but the greenback got support from U.S. economic data which backed the Federal Reserve's recovery view and bolstered U.S. Treasury yields. "Dollar strength as U.S. bond yields rise is generally the bigger picture at the moment, certainly after last night's stronger U.S. data," said Sue Trinh, senior currency strategist at RBC Capital Markets in Hong Kong. "But dollar-yen is bucking that dollar-rally trend, as Asian stock markets have not fully benefited," as they remain focused on the potential credit crunch in China, she said. Markets in Shanghai continued to slip, and Japan's Nikkei share average also gave up its gains and ended down 1 percent. While China's central bank pledged to prevent any lasting credit crunch, mainland stocks kept slipping as investors braced for tougher conditions in the world's second-largest economy. The dollar index, which tracks the U.S. unit against a basket or rivals, rose slightly to 82.590 , down from an earlier high of 82.723 but holding well above Tuesday's low of 82.241. On Monday, it hit a nearly three-week high of 82.841. The dollar was slightly lower against the yen compared with late U.S. trade, buying 97.51 yen after earlier rising to a high of 98.23 yen. That was shy of Monday's two-week high of 98.70 yen but remained above Tuesday's low of 96.95 and well away from this month's trough of 93.78 hit on June 13, according to Reuters data. Tuesday's U.S. data showed strong gains in business spending plans and a solid rise in house prices. Last week, Fed Chairman Ben Bernanke said the central bank could start to taper its bond-buying stimulus later this year if the economy continued to recover as it expected. Still to come this week are remarks from New York Fed President William Dudley on Thursday, followed by Cleveland Fed President Sandra Pianalto, Board Governor Jeremy Stein and San Francisco Fed President John Williams on Friday. The central bank officials' speeches could suggest that the message Bernanke sent was misinterpreted, which could cool market volatility to a degree and slow recent dollar appreciation, strategists at Citigroup said in a note to clients. But many market participants said the improving data likely speaks louder than anything the officials can muster. "As long as U.S. data are improving, the dollar will rise," said an advisor at a foreign exchange market research firm in Tokyo. Later on Wednesday, the U.S. Commerce Department is set to release its final estimate of first-quarter gross domestic product at 1230 GMT. Economists in a Reuters survey forecast a 2.4 percent annualised pace of growth, a repeat of the preliminary first-quarter reading. The euro edged down to $1.3073 from Tuesday's session high of $1.3151, bringing into view chart support at $1.3034, a level representing the 61.8 percent retracement of its May 17-June 19 rally. The common currency was further hampered by comments from European Central Bank President Mario Draghi, who said the bank was nowhere near exiting its accommodative monetary policy. The diverging policy views between the ECB and the Fed could weigh on the euro against the dollar, traders said. Commodity currencies initially lost ground against the dollar, although the Australian dollar showed signs of finding a bottom following its 11-percent drop since May. The Aussie has been further undermined by efforts by China, Australia's single biggest export market, to cool down lending. But the Australian unit found some comfort in comments by China's central bank on Tuesday, when it assured markets it would provide cash to institutions that need it. The Aussie rose about 0.1 percent to $0.9263, after ending almost flat on Tuesday. Still, it remained within touching distance of a 33-month low of $0.9145 reached on Monday, according to Reuters data. Initial support is seen at $0.9143, the 38.2 percent retracement level of its 2008 to 2011 rally.
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