Dollar clings to gains after bear-market bounce

SYDNEY (Reuters) - The U.S. dollar clung to gains in Asia on Friday after another sporadic bout of profit-taking in riskier trades that has characterized the currency's eight-month bear trend.

Traders could not identify any particular catalyst for the bounce. Some blamed it on softer equities, even as Wall St .N blamed the higher dollar for the drop in shares.

"The most probable explanation for Thursday's U.S. dollar recovery was simply that the market was short U.S. dollars and the move lower stalled enough to spark profit-taking," said John Noonan at IFR.

"It was a classic mini-spiral. The rally in the U.S. dollar sent asset markets lower, which in turn sent the U.S. dollar higher."

The bounce left the U.S. dollar index .DXY up at 75.655 and off 15-mth lows of 74.774, but remains within a well-defined downtrend channel that stretches back to May.

Matthew Strauss, a senior currency strategist at RBC Capital markets, noted the index had formed a double bottom at 74.94 and broken above the 38.2 percent Fibonacci retracement at 75.55.

Trendline resistance now came in around 76.02, drawn off a high from mid-May.

"A break above this level will question the eight-month bearish U.S. dollar trend and, although we remain dollar bears over the medium-term, a short-term bullish correction will not surprise us," said Strauss.

The euro had pulled back to $1.4845, from Thursday's peak around $1.5048, while the dollar reached 90.35 yen from the week's 89.26 trough.

Some felt the euro's dip was related to speculation China might be prepared to let the yuan rise, albeit slowly. The theory held that a rising yuan would lift other currencies across the region and take some pressure off the euro to appreciate against the U.S. dollar.

All this was for the longer-term, however.

"We would not expect a significant move to unfold until the global economy has found its feet and other central banks around the world are starting to rein back their own policy accommodation, which may not happen until well into 2010," said Shaun Osborne, a currency strategist at TD Securities.

There were also risks in this scenario for the U.S. dollar. In particular, Asian central banks might feel less need to recycle their excess dollars into U.S. Treasuries, fuelling concerns about how the United States would fund its massive budget deficit.

It was notable on Thursday that Korea, Malaysia, Thailand and the Philippines were all suspected to have intervened to buy dollars to stop their currencies appreciating. If that were to change, the dollar could lose an important source of support.

Economic data coming later on Friday include Japanese industrial production and early GDP reports from the euro zone which could show the area emerging from recession.

(Reporting by Wayne Cole; Editing by Mark Bendeich)