FOREX-Asian comments provide a big boost to the dollar

* Dollar climbs on comments in Asia on FX reserves

* Euro/dollar, cable reverse climb from 2009 highs

* Asian countries seen continuing to buy U.S. Treasuries (Recasts, adds comment, updates prices, changes byline, changes dateline, previous LONDON)

By Nick Olivari

NEW YORK, June 3 (Reuters) - The dollar recovered from its lowest levels this year against the euro on Wednesday after monetary sources in Asia said they would keep buying U.S. Treasuries even if the U.S. credit rating were to be cut.

The remarks from sources in China, Japan, India and South Korea [ID:nSP412010], compiled by Reuters from separate interviews, helped to stem recent selling that has driven the dollar index .DXY to its lowest this year and down more than 7 percent since the start of May.

Traders viewed the comments as an expression of support for dollar-denominated assets from the nations that control about half of the world's currency reserves. Dollar weakness would erode the value of U.S. investments.

"As the dollar continues to weaken, vocal intervention of this sort will rise," said Jacob Oubina, currency strategist at Forex.com in Bedminster, New Jersey. "This at least sets some kind of ceiling on euro strength and puts a floor under dollar weakness."

The euro pulled away from a five-month high it had hit in early trade and selling accelerated after the Reuters story was published. Sterling retreated from a seven-month high against the U.S. currency.

In early New York trade, the euro traded 0.7 percent lower at $1.4210 on electronic trading platform EBS EUR=EBS, after hitting a session low $1.4177 and falling from $1.4339 hit in early trade, its strongest since December.

The dollar index, which tracks the currency's moves against a basket of six currencies, rose as much as half a percent after the comments, keeping just above its lowest level of the year hit on Tuesday. .DXY

Some of the dollar's slide in past weeks has been attributed to speculation that the U.S. credit rating may be downgraded, a move that may prompt nations to diversify their foreign reserves away from U.S. Treasuries.

The comments by the monetary sources in Asia came after a visit by U.S. Treasury Secretary Timothy Geithner to China, the world's biggest holder of Treasuries, during which he assured Beijing its U.S. investments were safe because Washington is committed to a strong dollar policy.

Analysts said that the dollar-positive comments had prompted traders to lock in profits against the suffering U.S. currency and that it might help to stem its recent selling for the time being but was unlikely to change the trend.

"The market is becoming somewhat stretched on short dollar positions as there has been decent-sized buying in euro and sterling, so traders were looking for a reason to calm things down," said Geoffrey Yu, currency strategist at UBS in London.

Sterling GBP=D4 fell as low as $1.6482 after the report, according to Reuters data, tumbling from $1.6664 hit in early trading, the highest since since October.

BERNANKE AWAITED

Economists say the possibility of a U.S. credit rating downgrade is highly unlikely, but none of the Asian officials dismissed such a possibility, while adding that such a move would have limited impact on their reserve management policy.

Analysts said that the comments were significant, given that they come as a handful of countries around the world have questioned the dollar's role as the world's reserve currency.

"This is significant. It looks like a definite effort to try and shore up the dollar ... and is a contrast to the kind of noise made by Russia yesterday about a new supra-national currency," said Daragh Maher, senior currency strategist at Calyon in London.

On Tuesday, Russian President Dmitry Medvedev said the world's biggest emerging markets may discuss the idea of a supranational currency given a changing perception of the U.S. dollar because of weakness in the country's economy.

Investors on Wednesday awaited testimony from U.S. Federal Reserve Chairman Ben Bernanke, who will speak before the House of Representatives Budget Committee at 1400 GMT. The market is waiting for clues on whether the Fed will increase or speed up purchases of longer-dated Treasuries to keep down interest rates. (Additional reporting by Steven C Johnson in New York and Naomi Tajitsu in London; Editing by Padraic Cassidy)