FOREX-Dollar slides on Fed taper uncertainty, Yellen
* ECB may start asset purchases or cut rates further
* Sterling spikes after Bank of England report, UK jobs data
* Yen near two-month low vs dollar on higher U.S. bond yields
NEW YORK, Nov 13 (Reuters) - The dollar fell on Wednesday, weighed down by comments from Federal Reserve officials this week about the need to keep the U.S. central bank's economic stimulus in place, and on caution ahead of a Senate confirmation hearing on Thursday at which Fed Chair nominee Janet Yellen is expected to speak.
The euro, however, stayed resilient, rising even although European Central Bank Executive Board member Peter Praet said the ECB could start buying assets or cut its deposit rate into negative territory to trigger a rise in inflation to the central bank's target.
In the United States, there is a growing sense that a reduction in the Fed's stimulus may not be in the cards in the near term. Atlanta Fed President Dennis Lockhart, seen as a centrist in policy terms, and Minneapolis Fed President Narayana Kocherlakota both suggested on Tuesday that the current state of the U.S. economy still warrants aggressive monetary policy action. Their comments pressured the dollar.
Added to that was the uncertainty surrounding Yellen on Thursday. Most investors expect Yellen to be dovish and continue the policies of current Fed Chairman Ben Bernanke.
"There's not a lot of conviction in the market's moves today," said Vassili Serebriakov, currency strategist at BNP Paribas in New York. "I am really surprised about the euro's strength despite Praet's comments and this just goes to show you going into the holiday season investors are not willing to push the euro lower."
In the case of the dollar's weakness, Serebriakov said there are several factors, including concerns of what Yellen could say and mixed messages from Fed officials about tapering.
In early afternoon trading, the dollar index was down 0.3 percent, led by gains in the euro, which rose 0.2 percent to $1.3463.
The euro briefly inched lower after the ECB's Praet was quoted as saying in the Wall Street Journal that "the balance-sheet capacity of the central bank can also be used (to fulfil the inflation mandate)," including outright asset purchases.
Praet also said the ECB still had room to move on interest rates even after cutting the main rate to a record low of 0.25 percent last week and keeping the deposit rate at zero.
"A good amount of the bounce (in the dollar) came out on the news" from Europe, said Andrew Dilz, foreign currency trader at Tempus Inc in Washington, "If we get to a close of $1.3380, then there is more room for dollar strength."
Sterling rallied after the Bank of England said there was a chance British unemployment could fall to 7 percent in the fourth quarter of 2014. Data published earlier on Wednesday showed Britain's unemployment rate fell to 7.6 percent in the three months to September.
That kept alive speculation the UK central bank might raise interest rates far earlier than it has flagged so far, highlighting a divergence between Britain's monetary policy path and that of both the European Central Bank and the Bank of Japan.
"The tone struck in the quarterly inflation report was that of a more optimistic BoE, with Governor (Mark) Carney even suggesting that it's hard to ignore that the 'glass is half full'," said Chris Vecchio, currency analyst at DailyFX.com in New York.
Sterling rose to $1.6046, rebounding from Tuesday's two-month low of $1.5852. It gained after the better-than-expected UK jobs report and a raised growth forecast from the central bank. Sterling was last up 0.8 percent at $1.6027.
Bank of England Governor Mark Carney, speaking on Channel 4 on Wednesday, said that the central bank "absolutely" be prepared to raise rates before 2015 election if needed.
The dollar eased 0.3 percent to 99.32 yen, not far from a two-month high of 99.79 struck on Tuesday. The U.S. currency is up about 0.4 percent so far this week against the yen, having drawn strength from rising U.S. bond yields.
Higher U.S. bond yields tend to favor the dollar by making dollar-denominated debt more attractive to bond investors. The 10-year U.S. yield has risen since last Friday's strong U.S. jobs data for October.
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